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Asian shares edge up, on track for weekly gain

 

Asian shares edge up, on track for weekly gain

TOKYO (Reuters) – Asian shares edged higher on Friday, on track for weekly gains, though sentiment was kept in check by Wall Street’s weakness on concerns about the progress of U.S. tax reform.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was up 0.04 percent in early trade, poised to gain 1.2 percent for the week.

But Japan’s Nikkei stock index .N225 slipped 0.8 percent, down 1.3 percent for the week, feeling the pinch of a stronger yen even amid fresh signs the economy is gathering momentum.

Big Japanese manufacturers’ business confidence improved for a fifth straight quarter in the three months to December to hit an 11-year high, the Bank of Japan’s quarterly tankan survey showed.

On Thursday, U.S. retail sales increased more than expected in November and the number of Americans filing for unemployment benefits dropped to near a 44-1/2-year low last week. That pointed to sustained strength in the economy that could pave the way for further Federal Reserve interest rate hikes next year.

The Fed hiked interest rates on Wednesday but left its rate outlook for the coming years unchanged even as policymakers projected a short-term jump in U.S. economic growth from the Trump administration’s proposed tax cuts.

“The Fed’s move this week was largely perceived as a dovish hike,” said Bill Northey, chief investment officer at the private client group of U.S. Bank in Helena, Montana.

“It was ultimately well within expectations, and I think the one surprise was how strong the upgrade was for 2018 without any corresponding upgrade for their expectations for inflation,” he said. “That keeps our expectations around three rate hikes for 2018.”

On Wall Street on Thursday, major U.S. stock indexes fell, with the S&P 500 .SPX down the most in a month, as investor worries over potential roadblocks to the Republicans’ tax overhaul more than offset optimism over the strong data.

Republicans in the U.S. Congress reached a deal this week on a final version of their debt-financed legislation to cut taxes for businesses and wealthy Americans, with House and Senate votes expected early next week. But the bill has yet to get needed support of some key Senators, and investors worry about downward pressure on stocks if the bill were to fail.

The dollar index, which tracks the greenback against a basket of six rival currencies, was up 0.1 percent at 93.577 .DXY, down 0.3 percent for the week.

But the dollar was 0.1 percent lower against the yen at 112.28 JPY=, down more than 1 percent for the week, and moving away from a one-month high of 113.75 yen logged on Tuesday.

The euro was steady at $1.1779 EUR=. On Thursday, the European Central Bank raised growth and inflation forecasts for the euro area, but stuck with its pledge to provide stimulus for as long as needed.

Sterling was steady at $1.3435 GBP=. The Bank of England also left interest rates unchanged on Thursday, as expected.

U.S. crude oil futures extended gains, after rising on Thursday as a pipeline outage in Britain continued to support prices despite forecasts showing global crude surplus in the beginning of next year.

U.S. crude CLc1 added 0.1 percent, or 8 cents, to $57.12 a barrel, after gaining 0.8 percent overnight. Brent crude futures LCOc1 had yet to trade on Friday after settling up 1.4 percent, or 87 cents, at $63.31 a barrel on Thursday.

Reporting by Lisa Twaronite; Editing by Sam Holmes

Published at Fri, 15 Dec 2017 01:11:30 +0000

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VW executive convicted in U.S. may seek transfer to Germany: Welt am Sonntag

 

VW executive convicted in U.S. may seek transfer to Germany: Welt am Sonntag

BERLIN (Reuters) – Volkswagen (VOWG_p.DE) executive Oliver Schmidt, convicted in the United States this week for his role in the German carmaker’s emissions scandal, may ask to serve his prison sentence in Germany, German weekly Welt am Sonntag reported, citing sources close to Schmidt.

The paper said such a request would have to be approved by the U.S. Department of Justice as well as a German court.

Schmidt was sentenced on Wednesday to seven years in prison and fined $400,000, the maximum possible under a plea deal the German national made with prosecutors in August after admitting to charges of conspiring to mislead U.S regulators and violate clean-air laws.

Schmidt read a written statement in court acknowledging his guilt.

Welt am Sonntag quoted Schmidt’s lawyer Alexander Saettele as saying that he was looking into a possible appeal but that no decision had been made yet.

The verdict “was not a surprise, but it was still disappointing to him that he was not able to get through to the judge,” Saettele told the paper.

Saettele of Berlin-based lawfirm Danckert Huber Baerlein was not immediately available for comment outside his firm’s office hours.

David DuMouchel, a Detroit-based lawyer for Schmidt of lawfirm Butzel Long, declined to provide any details on the case.

“There are a number of matters that remain to be done and so the matter is still active and therefore I cannot comment,” he said in an e-mailed statement.

Schmidt also still faces possible disciplinary action at Volkswagen, including damages claims and termination of his contract, according to a company spokesman.

“That is an integral part of the compliance guidelines of any company,” the spokesman told Reuters on Friday.

In March, Volkswagen pleaded guilty to three felony counts under a plea agreement to resolve U.S. charges that it installed secret software in vehicles in order to elude emissions tests.

Schmidt was in charge of the company’s environmental and engineering office in Auburn Hills, Michigan, until February 2015, where he oversaw emissions issues.

U.S. prosecutors have charged eight current and former Volkswagen executives.

Reporting by Maria Sheahan; Additional reporting by Jan Schwartz; Editing by Elaine Hardcastle

Published at Sat, 09 Dec 2017 23:04:23 +0000

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China Initiating a Global Bear Market?

by TheDigitalArtist from Pixabay

China Initiating a Global Bear Market?

By: Doug Noland | Sat, Dec 2, 2017


Chair Yellen is widely lauded for her accomplishments at the Federal Reserve. For the most part, her four-year term at the helm of the Fed boils down to four (likely soon to be five) little rate hikes over 24 months. Most lavishing praise upon Janet Yellen believe she calibrated “tightenings” adeptly and successfully. Yet financial conditions have obviously remained much too loose for far too long. This predicament was conspicuous in the markets this week. A test of a North Korean ICBM that could reach the entire U.S. modestly pressured equities for about five minutes – then back to the races.

Bubble Dynamics are in full force. The Dow gained 674 points this week. The Banks were up 5.8%, the Broker/Dealers gained 4.5% and the Transports jumped 5.9%. The Semiconductors were hit 5.6%.  Bitcoin traded as high (US spot) as $11,434 and as low as $9,009 in wild Wednesday trading. Curiously, the VIX traded up 15% to 11.43.

It used to be that markets would fret the Fed falling “behind the curve,” fearing central bankers would be compelled to employ more aggressive tightening measures. Not these days. Any fear of central bank-imposed tightening is long gone. There is little fear of anything.

I recall writing similar comments back with the Bush tax cuts: “I’m as much for lower taxes as anyone. Yet I question the end results when tax cuts exacerbate late-stage Bubble excess.” And I seriously question the merits of aggressively slashing corporate tax rates when the federal government is $20 TN in debt. One of these days the bond market is going to wake up and impose some much need fiscal discipline. In a different era, the Treasury market would be forcing some realism upon Washington politicians (and central bankers).

Moreover, there’s a paramount issue that goes completely undiscussed: It’s presumed that lower taxes will spur economic growth and resulting booming tax receipts – that tax cuts will prove largely self-financing. Yet this fanciful notion ignores a critically important unknown: What role will the financial markets play? As we saw in the last downturn, faltering Bubble markets weigh heavily on both economic growth and government finances. I would go so far as to suggest that never has our nation’s fiscal prospects been as dependent on ongoing equities, bond market and real estate inflation.

Nine years of extreme monetary and fiscal stimulus fueled quite a boom. Interest rates were pegged way too low for too long. The seemingly obvious risk now is that market yields surprise to the upside. Despite the boom and artificially suppressed debt service costs, the federal government has nonetheless posted ongoing large budget deficits. I never bought into the late-nineties notion that budget surpluses were sustainable – that our nation would soon pay down all its debt. It was all a seductive Bubble Illusion.

Today’s delusion is so much more spectacular. I’m all for efforts to revitalize the U.S. manufacturing and export sectors. But to continue to aggressively employ system-wide fiscal and monetary stimulus at this late cycle stage comes with great risk. I’m surprised the bond market remains so sanguine. There’s a (not low probability) scenario that has consumer and producer inflation surprising on the upside, interest rates and market yields surprising on the upside, the stock market buckling to the downside, and fiscal deficits exploding to the unmanageable. The Powel Fed would confront serious challenges (in contrast to the cakewalk enjoyed by Yellen).

November 27 – CNBC (Jeff Cox): “Concern over stock market values is growing at the Fed, with one official worrying that waiting too long to tighten policy could have more serious effects later. In an essay released Monday, Dallas Fed President Robert Kaplan warned about ‘excesses’ in the economy, pointing specifically to stocks and the government debt. The S&P 500 market cap is at 135% of GDP, the highest since 1999-2000, just as the dot-com bubble was about to pop, the central banker said. ‘I am aware that, as excesses build, we are more vulnerable to reversals which have the potential to cause a rapid tightening in financial conditions, which in turn, can lead to a slowing in economic activity,’ Kaplan wrote. ‘Measures of stock market volatility are historically low. We have now gone 12 months without a 3% correction in the U.S. market.,’ he added. ‘This is extraordinarily unusual.'”

November 29 – Reuters (Ann Saphir): “The Federal Reserve should keep raising interest rates over the next couple of years, including about four times between now and the end of 2018, San Francisco Federal Reserve President John Williams said… ‘From today, four rate hikes through the end of next year is still kind of my base view,’ Williams told reporters… Williams rotates into a voting spot on the Fed’s policysetting panel next year. ‘We need to get from here to roughly 2.5% fed funds rate over the next couple of years.'”

One regional Fed president addressing stock market excesses and another talking four additional rate hikes before the end of next year. Whether monitoring the securities markets or economic data, the case for actual interest rate normalization gets stronger by the week. It’s worth noting that October New Home Sales blew away estimates to reach a 10-year high. Housing inventory remains tight and builders are getting gear up. A stronger-than-expected November reading from the Conference Board pushed Consumer Confidence to a new 17-year high. Q3 GDP was revised up to 3.3% annualized. The manufacturing sector remains strong and auto sales resilient (above 17 million SAAR).

Ten-year Treasury yields traded as high as 2.43% Thursday afternoon. Five-year yields rose to 2.17% Thursday, the high going back to March 2011. Longer Treasury yields have for the most part ignored the almost 50 bps rise in two-year yields over the past several months. It was interesting to watch 10-year Treasury yields drop a quick 10 bps Friday morning on reports of Michael Flynn’s plea agreement (and the Dow’s quick 380 decline). While stocks have grown content to disregard risk, Treasury bonds seem to embrace the Bubble Thesis – and trade as if trouble is right around the corner.

And speaking of trouble… U.S. markets fixated on tax cuts have been all too happy to ignore developments in China. Officials are taking an increasingly aggressive posture in reining in lending. In particular, Beijing is targeting the enormous “wealth management product” complex and the booming Internet lending industry. Liquidity has tightened, especially the corporate bond market (“Worst China Bond Rout Since 2013”). Are Chinese officials finally getting serious about their Credit Bubble? (See “China Watch” below)

The Shanghai Composite was down another 1.1% this week, with a 3.9% drop since the highs on November 14. China’s CSI index was down 2.6% this week. Chinese growth and tech stocks have been under notable pressure the past two weeks. Yet equities weakness was not limited to China. South Korean stocks fell 2.7%, and India’s equities lost 2.5%. Both Brazilian and Russian equities were hit for 2.6%. The emerging markets, in general, notably underperformed this week. European equities were also under pressure again this week. Could it be that Credit tightening in China is initiating a global bear market, only Bubbling U.S. equities haven’t figured it out yet?

November 24 – Reuters (Gaurav S Dogra): “For years China’s top officials have touted their ambitious policy priority to wean the world’s second-largest economy off high levels of debt, but there is not much to show for it. On the contrary, a Reuters analysis shows the debt pile at Chinese firms has been climbing in that time, with levels at the end of September growing at the fastest pace in four years. The build-up has continued even as policymakers roll out a series of measures to end the explosive growth of debt, including persuading state firms and local governments to prune borrowing and tighter rules and monitoring of banks’ short-term borrowing… Reuters analysis of 2,146 China listed firms showed their total debt at the end of September jumped 23% from a year ago, the highest pace of growth since 2013. The analysis covered three-fifths of the country’s listed firms…”


For the Week:

The S&P500 rose 1.5% (up 18.0% y-t-d), and the Dow jumped 2.9% (up 22.6%). The Utilities gained 0.9% (up 15.4%). The Banks surged 5.8% (up 14.0%), and the Broker/Dealers jumped 4.5% (up 26.5%). The Transports surged 5.9% (up 12.6%). The S&P 400 Midcaps advanced 1.9% (up 14.1%), and the small cap Russell 2000 gained 1.2% (up 13.3%). The Nasdaq100 declined 1.1% (up 30.3%). The Semiconductors sank 6.2% (up 38.9%). The Biotechs added 0.9% (up 38.4%). With bullion down $8, the HUI gold index fell 1.2% (up 1.9%).

Three-month Treasury bill rates ended the week at 124 bps. Two-year government yields increased three bps to 1.77% (up 58bps y-t-d). Five-year T-note yields gained five bsp to 2.11% (up 19bps). Ten-year Treasury yields rose two bps to 2.36% (down 8bps). Long bond yields were unchanged at 2.76% (down 30bps).

Greek 10-year yields rose seven bps to 5.37% (down 165bps y-t-d). Ten-year Portuguese yields declined six bps to 1.88% (down 186bps). Italian 10-year yields dropped 10 bps to 1.72% (down 10bps). Spain’s 10-year yields fell seven bps to 1.42% (up 4bps). German bund yields were down six bps to 0.31% (up 10bps). French yields dropped nine bps to 0.61% (down 7bps). The French to German 10-year bond spread narrowed three to 30 bps. U.K. 10-year gilt yields dipped two bps to 1.23% (down 2bps). U.K.’s FTSE equities dropped 1.5% (up 2.2%).

Japan’s Nikkei 225 equities index gained 1.5% (up 19.4% y-t-d). Japanese 10-year “JGB” yields added a basis point to 0.035% (down 1bp). France’s CAC40 fell 1.4% (up 9.3%). The German DAX equities index dropped 1.5% (up 12.0%). Spain’s IBEX 35 equities index added 0.3% (up 7.8%). Italy’s FTSE MIB index fell 1.4% (up 14.9%). EM markets were mostly lower. Brazil’s Bovespa index sank 2.6% (up 20.0%), and Mexico’s Bolsa fell 1.4% (up 3.6%). India’s Sensex equities index dropped 2.5% (up 23.3%). China’s Shanghai Exchange lost 1.1% (up 6.9%). Turkey’s Borsa Istanbul National 100 index declined 1.1% (up 33.8%). Russia’s MICEX equities index sank 2.6% (down 5.7%).

Junk bond mutual funds saw inflows of $310 million (from Lipper).

Freddie Mac 30-year fixed mortgage rates slipped two bps to 3.90% (down 18bps y-o-y). Fifteen-year rates fell two bps to 3.30% (down 4bps). Five-year hybrid ARM rates jumped 10 bps to 3.32% (up 4bps). Bankrate’s survey of jumbo mortgage borrowing costs had 30-yr fixed rates down a basis point to 4.13% (up 4bps).

Federal Reserve Credit last week declined $4.1bn to $4.406 TN. Over the past year, Fed Credit fell $5.0bn. Fed Credit inflated $1.587 TN, or 56%, over the past 264 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt jumped $15.0bn last week to $3.387 TN. “Custody holdings” were up $261bn y-o-y, or 8.3%.

M2 (narrow) “money” supply slipped $3.9bn last week to $13.774 TN. “Narrow money” expanded $595bn, or 4.5%, over the past year. For the week, Currency increased $2.6bn. Total Checkable Deposits rose $15.2bn, while Savings Deposits dropped $19.6bn. Small Time Deposits were little changed. Retail Money Funds dipped $1.8bn.

Total money market fund assets jumped $38.1bn to $2.799 TN. Money Funds rose $80bn y-o-y, or 2.9%.

Total Commercial Paper rose $14.2bn to $1.043 TN. CP gained $119bn y-o-y, or 12.9%.

Currency Watch:

The U.S. dollar index was little changed at 92.885 (down 9.3% y-t-d). For the week on the upside, the South African rand increased 3.1%, the British pound 1.1%, the Swiss franc 0.3%, the New Zealand dollar 0.2% and the Canadian dollar 0.2%. For the week on the downside, the Norwegian krone declined 1.9%, the Swedish krona 0.8%, the Brazilian real 0.8%, the Japanese yen 0.6%, the Mexican peso 0.4%, the euro 0.3%, and the South Korean won 0.1%. The Chinese renminbi declined 0.22% versus the dollar this week (up 5.0% y-t-d).

Commodities Watch:

The Goldman Sachs Commodities Index slipped 0.4% (up 7.8% y-t-d). Spot Gold declined 0.6% to $1,281 (up 11.1%). Silver sank 4.1% to $16.388 (up 2.6%). Crude declined 59 cents to $58.36 (up 8.4%). Gasoline dropped 2.6% (up 4%), while Natural Gas surged 8.8% (down 18%). Copper dropped 3.1% (up 23%). Wheat rallied 0.9% (up 8%). Corn gained 1.1% (up 2%).

Trump Administration Watch:

November 28 – Reuters (Josh Smith): “North Korea said on Wednesday it had successfully tested a new type of intercontinental ballistic missile (ICBM), called Hwasong-15, that could reach all of the U.S. mainland… “If (today’s) numbers are correct, then if flown on a standard trajectory rather than this lofted trajectory, this missile would have a range of more than 13,000 km (8,100 miles),” the U.S.-based Union of Concerned Scientists said… That would suggest that all of the continental United States including Washington D.C. and New York could be theoretically within range of a North Korean missile.”

December 1 – Wall Street Journal (Richard Rubin, Siobhan Hughes and Kristina Peterson): “The Senate was poised to pass sweeping revisions to the U.S. tax code early Saturday after Republicans navigated a thicket of internal divisions over deficits and other issues to place their imprint on the economy. The bill, which included about $1.4 trillion in tax cuts, would lower the corporate tax rate from 35% to 20%, reshape international business tax rules and temporarily lower individual rates. It also touched other Republican goals, including opening the Arctic National Wildlife Refuge to oil drilling and repealing the mandate that individuals purchase health insurance, punching a sizable hole in the 2010 Affordable Care Act.”

December 1 – New York Times (Michael D. Shear and Adam Goldman): “President Trump’s former national security adviser, Michael T. Flynn, pleaded guilty on Friday to lying to the F.B.I. about conversations with the Russian ambassador last December, becoming the first senior White House official to cut a cooperation deal in the special counsel’s wide-ranging inquiry into election interference.”

November 28 – Financial Times (Shawn Donnan): “The Trump administration launched a fresh trade attack against China on Tuesday, with Washington initiating an anti-dumping investigation against a major trading partner for the first time in more than a quarter century. The move to ‘self-initiate’ an anti-dumping investigation into imports of aluminium sheeting from China marks the first time since 1985 that the US Commerce Department has launched its own investigation without a formal request from industry. The last case was brought by the Reagan administration against Japanese semiconductor imports… A parallel investigation launched on Tuesday into illegal subsidies given to the Chinese sheet industry marks the first time since a 1991 Canadian lumber case that the Commerce Department has self-initiated a probe into subsidies. ‘President [Donald] Trump made it clear from day one that unfair trade practices will not be tolerated under this administration,’ said Wilbur Ross, the US Secretary of Commerce. ‘Today’s action shows that we intend to make good on that promise to the American people.'”

November 29 – Reuters: “Opposition has grown among Americans to a Republican tax plan before the U.S. Congress, with 49% of people who were aware of the measure saying they opposed it, up from 41% in October, according to a Reuters/Ipsos poll…”

China Watch:

November 27 – Wall Street Journal (Anjani Trivedi): “Beijing is coming to grips with its Wild West-like financial system — not a moment too soon, many would argue. The jittery market reaction shows just how delicate that operation is going to be. The timing isn’t coincidental. Xi Jinping has solidified his hold on the Chinese government following the recent party congress, giving him leeway to tackle the country’s deep-seated economic problems. Its most serious effort yet to tame the financial system’s risks are the result. The focus of the recent rule changes is China’s 60 trillion yuan (around $9 trillion) asset-management industry. Regulators have homed in on China’s vast sea of so-called wealth- and asset-management products, the highly leveraged products that banks have sold to their customers in recent years, which in turn have fueled frothy domestic bond, stock and commodity markets.”

November 26 – Bloomberg: “It’s been the worst month for China’s local corporate notes in two years. And it might just be the start, as the nation’s top bond fund manager says yield premiums could rise further in 2018. President Xi Jinping is stepping up efforts to trim the world’s largest corporate debt burden, after emerging even more powerful from the Communist Party’s twice-a-decade congress in October. Financial institutions are hoarding cash amid expectations the government will announce more measures to curb leverage, and that is pushing up borrowing costs in the money market.”

November 30 – Wall Street Journal (Shen Hong): “A widening gap between official and market interest rates in China is making it harder for Beijing to use a key policy tool to manage the world’s second-largest economy. Short-term interest rates in China’s money market have persistently been above those set by the central bank in the past year, as investors and banks spooked by the government’s crackdown on the country’s high levels of leverage have charged more to lend both to each other and external borrowers… The interest rate the People’s Bank of China sets on its benchmark seven-day repurchase agreements, its de facto policy rate, has stayed unchanged at 2.45% since March. Meanwhile the corresponding repurchase agreements, or repo, rate that banks charge each other for their own seven-day loans, has risen to 2.93%…”

November 24 – Reuters (Shu Zhang and Josephine Mason): “The National Internet Finance Association of China issued a risk warning letter late on Friday telling ‘unqualified institutions’ to immediately stop offering loans as Beijing steps up a crackdown on the micro-loan sector to fend off financial risks. The 1 trillion yuan ($151.5bn) short-term, unsecured lending sector, known as ‘cash loan’ in China, has been accused of charging exorbitant interest rates and violent debt collection practices.”

Federal Reserve Watch:

November 29 – Bloomberg (Christopher Condon): “The U.S. economy grew at a modest to moderate pace through mid-November as price pressures strengthened and the labor market tightened… The central bank’s Beige Book economic report, based on anecdotal information collected by the 12 regional Fed banks through Nov. 17, said business contacts also reported a brightening view as they look ahead. The findings could help bolster the case for an interest-rate increase when policy makers next meet in two weeks.”

November 29 – CNBC (Jeff Cox): “Federal Reserve Chair Janet Yellen said the central bank is concerned with growth getting out of hand and thus is committed to continuing to raise rates in a gradual manner. ‘We don’t want to cause a boom-bust condition in the economy,’ Yellen told Congress in her semiannual testimony Wednesday.”

U.S. Bubble Watch:

November 27 – Bloomberg (Sho Chandra): “U.S. purchases of new homes unexpectedly advanced in broad fashion last month, reaching the strongest pace in a decade and offering an encouraging signal for residential construction… Single-family home sales rose 6.2% m/m to 685k annualized pace (est. 627k), the highest since Oct. 2007. Supply of homes at current sales rate fell to 4.9 months, the smallest since July 2016.”

November 28 – Bloomberg (Patrick Clark): “U.S. consumer confidence unexpectedly improved in November to a fresh 17-year high, a sign Americans are growing more confident about the economy and labor market… Confidence index rose to 129.5 (est. 124), the best since November 2000, from a revised 126.2 in October… Consumer expectations gauge advanced to 113.3, the strongest reading since September 2000, from 109.”

November 27 – Reuters (Richa Naidu): “Black Friday and Thanksgiving online sales in the United States surged to record highs as shoppers bagged deep discounts and bought more on their mobile devices, heralding a promising start to the key holiday season… U.S. retailers raked in a record $7.9 billion in online sales on Black Friday and Thanksgiving, up 17.9% from a year ago, according to Adobe Analytics…”

November 29 – Bloomberg (Sho Chandra): “The U.S. economy’s growth rate last quarter was revised upward to the fastest in three years on stronger investment from businesses and government agencies than previously estimated… Gross domestic product grew at a 3.3% annualized rate (est. 3.2%), revised from 3%; fastest since 3Q 2014… Business-equipment spending rose at a 10.4% pace, a three-year high, revised from 8.6%; reflects transportation gear.”

November 29 – Bloomberg (Camila Russo, Olga Kharif, and Lily Katz): “Bitcoin plunged as much as 20% hours after a rally past $11,000 generated a surge in traffic at online exchanges that led to intermittent outages. The plunge capped a wild day for the largest cryptocurrency that included a breakneck advance to a high of $11,434 before the reversal took it as low as $9,009.”

November 24 – Bloomberg (Lu Wang): “As Wall Street equity forecasters discharge their annual duty of predicting another up year for the S&P 500 Index, it’s worth taking a moment to notice what would be accomplished should that projection come true. At 2,800, the average estimate of nine strategists tracked by Bloomberg points not only to another year of all-time highs, but also an extension of a bull market that would make it the longest ever recorded. Born in the depths of the financial crisis, the advance that started in March 2009 is nine months away from surpassing the 1990-2000 run from the dot-com era.”

November 29 – Bloomberg (Patrick Clark): “The shortage of listings that has defined the U.S. home sales market in recent years will begin to ease in the second half of 2018, according to a new report, but not before setting a record for consecutive months of decline. Increased inventory will help slow price appreciation, especially at higher price points, according to… Realtor.com. That will come as welcome news after the S&P CoreLogic Case-Shiller 20-city index this week showed that prices rose 6.2% in September from a year earlier, the largest increase in more than three years. Inventory has decreased on a year-over-year basis in each of the past 29 months… The longest streak on record is 30 months.”

November 27 – Bloomberg (Joanna Ossinger): “New York City could lose some of its highest-income residents if the tax bill making its way through the U.S. Congress becomes law, according to estimates from Goldman Sachs… Initial analysis suggests that the legislation ‘could eventually lower the number of top-income earners in New York City’ by 2% to 4%, Goldman economists led by Jan Hatzius wrote… The trigger would be a provision that restricts the ability of taxpayers to deduct the levies they pay to state and local authorities, which would disproportionately hit locations with relatively high rates. Home prices across the U.S. might also decline by 1% to 3%.”

November 27 – Bloomberg (Brian K Sullivan): “This year’s U.S. Atlantic hurricane season is officially the most expensive ever, racking up $202.6 billion in damages since the formal start on June 1. The costs tallied by disaster modelers Chuck Watson and Mark Johnson surpass anything they’ve seen in previous years. That shouldn’t come as a complete surprise: In late August, Hurricane Harvey slammed into the Gulf Coast, wreaking havoc upon the heart of America’s energy sector. Then Irma struck Florida, devastating the Caribbean islands on the way. Hurricane Maria followed shortly after, wiping out power to all of Puerto Rico.”

Central Banker Watch:

November 30 – Bloomberg (Alessandro Speciale and Catherine Bosley): “Central banks concerned about the effects of raising rates too fast shouldn’t underestimate the risks of delaying action, the general manager of the Bank for International Settlements said. ‘Postponing normalization too much also has risks,’ [said] Jaime Caruana… ‘Why? Because there is more risk-taking and it’s difficult to know where the risk-taking will go.'”

November 29 – Bloomberg (Jiyeun Lee and Hooyeon Kim): “The Bank of Korea raised its benchmark interest rate for the first time since 2011, marking a likely turning point for Asian central banks. The region faces rising pressure to increase borrowing costs after the Federal Reserve began tightening at the end of 2015 and today’s move in Seoul is the first hike of a benchmark rate by a major central bank in Asia since 2014. Governor Lee Ju-yeol said during a news conference that the decision to raise the seven-day repurchase rate to 1.5% was meant to prevent financial imbalances.”

Global Bubble Watch:

November 29 – Bloomberg (Sofia Horta E Costa): “A prolonged bull market across stocks, bonds and credit has left a measure of average valuation at the highest since 1900, a condition that at some point is going to translate into pain for investors, according to Goldman Sachs… ‘It has seldom been the case that equities, bonds and credit have been similarly expensive at the same time, only in the Roaring ’20s and the Golden ’50s,’ Goldman Sachs International strategists including Christian Mueller-Glissman wrote… ‘All good things must come to an end’ and ‘there will be a bear market, eventually’ they said.”

November 29 – Bloomberg (Sofia Horta E Costa): “Investors may only have seven months left to savor a bull run that has added $27 trillion to global equity markets this year, say Credit Suisse Group AG strategists. While they predict economic growth and steady profits will help add another 6% to the MSCI All-Country World Index by mid-2018, stocks are unlikely to push any higher after that. Risks that could make the second half ‘more difficult’ include a flare-up in junk debt markets, China’s tightening policy and accelerating wages in the U.S, according to a Nov. 28 note.”

November 27 – Bloomberg (Kana Nishizawa, Lianting Tu, and Narae Kim): “The selloff in China’s debt market is a precursor for what global bond traders can expect as reflation gets underway, according to Sean Darby, chief global strategist of Jefferies Group LLC’s Hong Kong unit. While declines in Chinese debt have been exacerbated by a crackdown on shadow banking and attempts to curb corporate borrowing, Darby says global yields are set to follow suit as markets start to price in tighter monetary policy by central banks and as China exports inflation. China ‘was the first one really to reflate from 2016,’ Darby told Bloomberg… ‘Expansion of essentially quantitative easing by the People’s Bank of China is in one sense also being reversed as the yield starts to shift upwards.”

November 30 – Bloomberg (Brian Chappatta): “For all the hullabaloo around the flattening U.S. yield curve in November, the 10-year yield is still on track for its least turbulent month in almost four decades. The note’s yield, which serves as a benchmark for everything from U.S. mortgages to borrowing costs for municipalities, fell in November to as low as 2.3% and topped out at 2.41%. That’s the narrowest range since 1979. Even with volatility largely suppressed, the rate has swung about 32 bps on average every month over the past five years.”

November 28 – Bloomberg (Andrew Janes): “There’s ‘somewhat of a numbness’ to risk among investors right now that’s reminiscent of pre-crisis periods in the past, according to Olivier d’Assier, head of applied research for Asia Pacific at Axioma Inc. …d’Assier… points to the lack of reaction to the recent jump in the Chicago Board Options Exchange’s SPX Volatility Index. The gauge, known as the VIX index, surged from 10.18% at the end of October to as high as 14.51% on Nov. 15, a three-month intraday high. ‘A couple of years ago, when there was a 6, 9, 10% increase in the VIX Index, everybody panicked,’ he said. But ‘nobody cared, everybody jumped in’ when the measure shot up this month, d’Assier said.”

Fixed Income Bubble Watch:

November 27 – Financial Times (Joe Rennison and Robert Smith): “Investors are driving a revival of structured credit products that were a hallmark of the boom years before the financial crisis, as slumbering global bond yields spur a greater tolerance of risk in the search for returns. The sale of collateralised loan obligations — bonds that group together leveraged loans made to companies — has already past $100bn of new issuance for 2017, well ahead of the $60bn sold over the same period in 2016 and approaching the post-crisis record of $124bn set in 2014. Traders and analysts say foreign investors out of Asia and Europe, alongside domestic insurance companies, generally favour senior CLO tranches… Global pension funds and hedge funds are said to be driving demand for riskier tranches that promise a higher return than current fixed returns available from owning US high-yield bonds.”

Europe Watch:

November 28 – Financial Times (Shawn Donnan): “The ramifications of the European Central Bank’s massive bond purchases in recent years register acutely for insurance companies and pension funds alongside other traditional buyers of top tier debt. Over the past three years, the ECB’s bond purchases have sucked more than €2tn of debt out of Europe’s publicly traded markets, and an estimated €760bn, or nearly a third, of these bonds are triple A rated… Joe McConnell, a portfolio manager in the global liquidity group at JPMorgan Asset Management, argues that there has been no issue ‘getting fully invested’ but that returns have been clearly affected. ‘The main impact of QE has been driving yields lower,’ he said, adding that the yields on ‘pretty much everything’ in the money market universe are negative. Alongside a reduction in the outstanding universe of highly-rated assets, the sheer volume of purchases has placed huge downward pressure on bond yields. In turn, that leaves investors having to accept higher levels of credit and interest rate risk in order to generate reasonable returns.”

November 29 – Bloomberg (Alessandro Speciale): “German inflation accelerated more than anticipated in November, in a sign that robust growth in Europe’s largest economy may be translating into higher prices. Consumer prices rose an annual 1.8%… That’s faster than October’s 1.5% and beats the 1.7% median forecast…”

Japan Watch:

November 26 – Financial Times (Gavyn Davies): “The five year term of Bank of Japan Governor Kuroda will end in April 2018. As one of Prime Minister Abe’s key lieutenants, it had been widely assumed that he will be reappointed to a second term, and that his aggressive programme of monetary expansion will be maintained at least until inflation has over-shot the Bank’s 2% target. This had become one of the fixed points in consensus expectations for global asset prices in 2018. Last week, however, these strong assumptions came into question for the first time. The yen rose as investors paid attention to Governor Kuroda’s recent speech in Zurich, which specifically noted some of the risks associated with the policy commitment to fix the 10 year government bond yield at zero… This was followed by some hawkish press ‘guidance’, allegedly from within the central bank. Then, new BoJ Board member Hitoshi Suzuki followed the Governor with a much clearer signal that this so-called Yield Curve Control (YCC) could be watered down next year. If so, it would be the first sign of that the central bank may be contemplating the normalisation of interest rates, albeit with Japanese characteristics.”

November 27 – Reuters (Leika Kihara and Tetsushi Kajimoto): “Bank of Japan Governor Haruhiko Kuroda said… that a ‘reversal rate,’ or the level where interest rate cuts by a central bank could hurt the economy, helps the BOJ understand the appropriate shape of the yield curve. ‘It’s a theory that helps us understand the appropriate shape of the yield curve,’ Kuroda told parliament… Kuroda referred to an academic study on the reversal rate in a speech earlier this month, adding to recent growing signals from the BOJ that it could edge away from crisis-mode stimulus earlier than expected.”

November 27 – Financial Times (Robin Harding): “Japanese companies are scouring the country for workers and offering more attractive permanent contracts as they struggle to overcome the worst labour shortages in 40 years. Companies across a range of sectors — from construction to aged care — have warned in recent days that a lack of staff is starting to hit their business. The hiring difficulties highlight Japan’s declining population and the strength of its economy after five years of economic stimulus… ‘Delays to construction projects are becoming chronic,’ said Motohiro Nagashima, president of Toli Corporation, one of Japan’s biggest makers of floor coverings.”

Emerging Market Watch:

November 29 – Financial Times (Kate Allen): “Emerging market countries, banks and companies are selling long-dated debt in record volumes as investors’ search for yield pushes them to expand their appetite for risk. With markets set to remain open for business for another couple of weeks before winding down to year-end, syndicated sales of paper with maturities of 10 years and more has hit a record high in emerging economies, topping $500bn for the first time according to… Dealogic… Around a third of the total finance raised came from sovereigns and related entities, while 37% came from EM corporates and a quarter from financial institutions… Ultra-low interest rates in developed economies have channelled a wave of money towards higher-yielding assets, pushing up prices in EMs.”

November 28 – Wall Street Journal (Patrick Clark): “The debt woes of one of India’s leading wireless carriers Reliance Communications Ltd. have deepened this week thanks to an unlikely new source of pressure — a leading state-owned Chinese bank. It emerged late Monday that China Development Bank, a policy bank which often helps fund Chinese companies’ investments overseas, had late last week filed a petition for Reliance… to be declared insolvent. The move is highly unusual. Only once before in recent times has a foreign lender requested an Indian company to be declared insolvent. However, China Development Bank is one of RCom’s biggest lenders, having invested some $2 billion in the company’s debt since 2010.”

Leveraged Speculation Watch:

November 30 – Financial Times (Robin Wigglesworth): “A divergence in performance among quantitative hedge funds has caught the eye of investors. In a year where many such funds that surf market trends have disappointed, some of their more daring cousins have clocked up juicy returns trading everything from electricity to cheese prices. Computer-powered trend-following hedge funds… have enjoyed robust inflows in recent years… But their performance has been mediocre recently, gaining about 2% on average this year, according to a Societe Generale index. However, a batch of hedge funds that trade less liquid, more exotic markets have clocked up attractive double-digit returns. These vehicles eschew mainstream markets and attempt to ride trends in areas such as Brazilian and Czech interest rate derivatives, natural gas, uranium funds and even cheese and milk contracts.”


Doug Noland

Doug Noland
Credit Bubble Bulletin

Doug Noland

I just wrapped up 25 years (persevering) as a “professional bear.” My lucky
break came in late-1989, when I was hired by Gordon Ringoen to be the trader
for his short-biased hedge fund in San Francisco. Working as a short-side
trader, analyst and portfolio manager during the great nineties bull market
– for one of the most brilliant individuals I’ve met – was an exciting, demanding
and, in the end, a grueling and absolutely invaluable learning experience.
Later in the nineties, I had stints at Fleckenstein Capital and East Shore
Partners. In January 1999, I began my 16 year run with PrudentBear, working
as strategist and portfolio manager with David Tice in Dallas until the bear
funds were sold in December 2008.

In the early-nineties, I became an impassioned reader of The Richebacher Letter.
The great Dr. Richebacher opened my eyes to Austrian economics and solidified
my lifetime passion for economics and macro analysis. I had the good fortune
to assist Dr. Richebacher with his publication from 1996 through 2001.

Prior to my work in investments, I worked as a treasury analyst at Toyota’s
U.S. headquarters. It was working at Toyota during the Japanese Bubble period
and the 1987 stock market crash where I first recognized my love for macro
analysis. Fresh out of college I worked as a Price Waterhouse CPA. I graduated
summa cum laude from the University of Oregon (Accounting and Finance majors,
1984) and later received an MBA from Indiana University (1989).

By late in the nineties, I was convinced that momentous developments were
unfolding in finance, the markets and policymaking that were going unrecognized
by conventional analysis and the media. I was inspired to start my blog,
which became the Credit Bubble Bulletin, by the desire to shed light on these
developments. I believe there is great value in contemporaneous analysis,
and I’ll point to Benjamin Anderson’s brilliant writings in the “Chase Economic
Bulletin” during the Roaring Twenties and Great Depression era. Ben Bernanke
has referred to understanding the forces leading up to the Great Depression
as the “Holy Grail of Economics.” I believe “The Grail” will instead be
discovered through knowledge and understanding of the current extraordinary
global Bubble period.

Disclaimer: Doug Noland is not a financial advisor nor is he providing investment
services. This blog does not provide investment advice and Doug Noland’s comments
are an expression of opinion only and should not be construed in any manner
whatsoever as recommendations to buy or sell a stock, option, future, bond,
commodity or any other financial instrument at any time. The Credit Bubble
Bulletins are copyrighted. Doug’s writings can be reproduced and retransmitted
so long as a link to his blog is provided.

Copyright © 2015-2017 Doug Noland

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com

Published at Sat, 02 Dec 2017 07:07:29 +0000

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UBS exits recruiting pact, following Morgan Stanley

The logo of Swiss bank UBS is seen on a building in Zurich, Switzerland December 19, 2012. REUTERS/Michael Buholzer/File Photo

UBS exits recruiting pact, following Morgan Stanley

NEW YORK (Reuters) – UBS Group AG’s Wealth Management Americas said on Monday it was quitting a 13-year-old recruiting agreement that ended the practice of suing brokers who quit for jobs at competing firms, following a similar move by rival Morgan Stanley last month.

In an email to the firm’s nearly 10,000 brokers, UBS Wealth Management Americas President Tom Naratil said his priority was for current advisers to increase productivity, “not recruiting advisers from our competitors.”

The agreement, called the Broker Protocol, was struck in 2004 between Smith Barney, Merrill Lynch and UBS, then called UBS Financial Services. It allowed brokers to take certain client information with them to new jobs, which they used to call clients and invite them to move their accounts.

In recent years, the wealth management industry has splintered, and boutique, independent investment firms now compete with the industry’s largest firms for the same brokers and clients.

More than 1,600 firms have signed the agreement, meaning firms both large and small have equal protection to recruit top brokers and their wealthy clients without fear that the former firm will try to legally stop that.

Last year, UBS announced it was pulling back on recruiting, triggering similar reactions at other firms.

UBS will no longer be subject to the protocol starting on Friday, Naratil said.

Reporting By Elizabeth Dilts; Editing by Andrew Hay

Published at Mon, 27 Nov 2017 18:35:31 +0000

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France cuts cost of sacking traders to lure banks post-Brexit

 

France cuts cost of sacking traders to lure banks post-Brexit

PARIS (Reuters) – The French parliament has approved measures to cut the cost of sacking traders by excluding their bonuses from compulsory redundancy payouts, in a move aimed at luring banks’ trading activities to Paris as Britain leaves the European Union.

A general view shows the Arc de Triomphe and the financial and business district in La Defense, west of Paris, France November 22, 2017. REUTERS/Gonzalo Fuentes

Paris and Frankfurt are at the forefront of a race among European cities to attract London financial services businesses that need a base in the European Union to continue serving customers in the bloc after Britain leaves in March 2019.

France has stepped up efforts to attract London banks to Paris after the election of President Emmanuel Macron, who has cut taxes and taken steps to make labor laws more flexible.

France’s lower house of parliament approved the measures late on Thursday, just days after Paris was picked to host the European Banking Authority (EBA), giving new momentum to its bid to attract banking jobs after Brexit.

“In order to improve the attractiveness of Paris as a financial center in the context of Brexit and for social justice, it seems preferable to exclude these bonuses from compulsory redundancy payouts and possible court awards,” Labour Minister Muriel Penicaud told lawmakers.

Goldman Sachs has already said it will make Paris and Frankfurt its European hubs after Brexit.

Bank of America is also looking to lease more office space in Paris, according to two sources familiar with the matter, while Citigroup is applying for a licence to conduct investment banking activities in France.

JPMorgan Chief Executive Jamie Dimon said in October the U.S. bank might move 60 jobs to Paris.

Reporting by Simon Carraud and Emile Picy; Writing by Michel Rose. Editing by Jane Merriman

Published at Fri, 24 Nov 2017 13:34:51 +0000

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Have digital currencies really stolen Vladimir Putin’s heart?

Have digital currencies really stolen Vladimir Putin’s heart?


| Tue, Nov 21, 2017

If you’re talking economics in Russia these days, you won’t be able to avoid the matter of digital currency.

Leading online Russian news agency Lenta.ru’s economy lead on November 20 made no bones about the issue. “What will help Russia escape its oil dependence?” asked the headline. The vaunted solution: digital currencies.

Yet, despite Vice’s recent assertion that Russia has gone “all-in” on digital currencies, the Kremlin continues to deliver mixed messages. On the one hand, government officials will not stop berating digital currencies, claiming that they are the tools of money launderers and terrorists. But there are also signs that Russia might just be on the verge of embracing digital currencies – on an unprecedented scale.

Cause for concern?

Where does the negativity stem from? Well, for a start, the country’s Central Bank recently warned of “serious concerns over the risks of digital currencies,” claiming that terrorists can exploit them to their own ends, and berating “the highly volatile nature of the crypto-currency market.”

Officials have vowed that they will issue a comprehensive set of regulations before the year is out, and the Duma’s head of IT Leonid Levin said in September, “In a country where millions have suffered from pyramid schemes, we should not allow citizens to sell their apartments to make cryptocurrency investments.”

Last month, the central bank even said it would move to block access to online digital currency exchanges, and called bitcoin and other currencies “dubious.”

Glass half full

You could argue that shutting the door to digital currencies makes no real sense to Russia, a country that is quite publicly trying to find ways to reduce its well-publicized dependence on selling oil and gas.

Many claim that digital currency mining presents countries like Russia with a massive opportunity. As energy prices remain so low in Russia, Vladimir Putin and his aides are no doubt casting an eye at former Soviet states like Georgia, whose state-run bitcoin mining center is now the envy of all Central Asia. This success story appears to have them, “why aren’t we doing something like this?”

Russian Miner Coin, a venture that Bloomberg claims is run by one of Putin’s internet aides, is proposing to do just that. Dmitry Marinichev, Russia’s Internet Ombudsman of Russia and perhaps the most influential digital currency advocate in the country, has claimed that Russia “has the potential to reach up to a 30 percent share in global cryptocurrency mining in the future.”

Ethereum excitement

Much has also been made of Putin’s recent meeting with the 23-year-old founder of Ethereum, Vitalik Buterin, with the Kremlin’s official website recounting that “Buterin spoke about the possibilities of using the technology he had developed in Russia,” and adding that “the president supported the idea of ??establishing business contacts with potential Russian partners.”

The country’s banks also seem very keen on Ethereum. Vnesh Econombank (VEB) announced it had begun work on an Ethereum-based project back in August, with Buterin himself turning up to sign an agreement with VEB chiefs.

Meanwhile, another leading Russian bank, Sberbank, has recently joined the Enterprise Ethereum Alliance (EEA), whose members also include the likes of Accenture, Deloitte, Intel and Microsoft. The alliance was created in February this year, and aims to apply blockchain technology to real-world business situations using Ethereum.

Some believe that digital currencies provide Russia with a way to sidestep Western sanctions in business dealings – by disposing with the need for offshore companies and utilizing a minimum of intermediaries.

And then there is the much-vaunted “Bitcoin City” project. This ambitious venture could see the government set up a state-run “megacity” bitcoin mine, Georgia-style. The site is an as-yet-unnamed Siberian city, possibly near the Chinese border – where it could increase the influx of “business tourism.”

Hybrid approach possible

Instead of loosening the reigns or issuing a China-style government crackdown, the Kremlin perhaps wants to take a hybrid approach to digital currencies. Putin, it might be argued, seems happy to let digital currency-based enterprises thrive in Russia on two conditions: that the government knows about them, and that Moscow takes a cut.

Take, for example, the Kremlin’s proposed cryptocurrency mining legislation. If passed, Russian miners would be able to continue their activities unabated – so long as they paid taxes on their earnings.

No doubt, Russia has massive competitive advantages when it comes to potential bitcoin mining. As mentioned above, power is cheap, especially in rural areas. And much has been made of the possibility of placing mining data centers in some of the coldest parts of the country to solve overheating problems. Energy prices in Irkutsk, for example, are five time cheaper than in Moscow – a reason why many of the country’s bitcoin miners have already set up shop in this Siberian city, and why Irkusk residents are now using mining software to “pay their utility bills.”

Crucially, the Central Bank’s Deputy Chair and head of blockchain technology Olga Skorobogatova spoke during a recent televised interview of imposing mining taxes. Skorobogatova stated that these taxes would apply to both individual miners and to private mining ventures.

There is also talk of regulating (rather than banning) initial coin offerings (ICOs), another sign that Russia sees digital currencies as a potential money-spinner.

Guarded stance

Only time will tell what Putin’s digital currency policy is – the chances are he is happy for the rest of the world to remain in a state of confusion regarding his true motives. And with so much at stake, perhaps he believes playing his cards close to his chest is the smartest move he can make right now.

But for a country that seemingly has so much to gain from digital currencies, it is hard to imagine Putin ordering a Beijing-style clampdown.

As Lenta.ru’s Yegor Polyankov speculates intriguingly, “Who knows? Perhaps Russia’s rich are already converting their money into digital currencies.”

By Crypto Insider

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Published at Tue, 21 Nov 2017 15:12:54 +0000

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Prospect of post-Brexit boom sparks worry as well as celebration in Frankfurt

 

Prospect of post-Brexit boom sparks worry as well as celebration in Frankfurt

FRANKFURT (Reuters) – The prospect of bankers pouring into Frankfurt from post-Brexit Britain has worried local residents anxious about the effect on an already dire housing shortage but also energized leftist groups looking to advance their anti-capitalist ideology.

At least 10,000 financial jobs are expected to move out of London when Britain leaves the European Union in March 2019, a number that could balloon to 75,000 over the longer term. The majority of banks, including Goldman Sachs, say they expect to move to Frankfurt.

Frankfurters looking forward to the influx say they hope a free-spending clientele will breathe new life into what is often seen abroad as a dull provincial capital.

Other residents are worried about rents and housing stock in the city, given that many in the lower-to-middle income range already have a hard time finding a home, however.

Among Germany’s active and well-established leftists, who have described the big banks as “ticking time bombs”, groups like “Blockupy” and the Interventionist Left are plotting strategies for disruption.

It’s a reminder that while some of the world’s legendary bankers – the Rothschilds, the Warburgs, even the founder of Goldman Sachs, Marcus Goldman – were born in Germany, so was Karl Marx.

“We view the concentration of banks in Frankfurt with concern,” said a Blockupy spokesman who identified himself as Thomas Occupy. “For some members, Goldman Sachs is like a red rag to a bull.”

Rents in Frankfurt have risen by up to 37 percent since 2009, according to three private data providers, triple the pace for all of Germany, according to Bundesbank estimates. Frankfurt planning officials estimate the city has a shortfall of 40,000 homes even before the Brexit wave hits.

Private developers plan 20 new high-rise buildings within five years but are aiming those at wealthy tenants, with asking prices of 4 million euros for some apartments.

By comparison, state-owned ABG Frankfurt Holding, which builds affordable housing, completed just 445 apartment units last year. It plans to build thousands more in the coming years but they will arrive too late to relieve the immediate crunch.

“The forecasts were wrong. We had expected the population would stagnate,” said Mark Gellert, a spokesman for the city’s planning division. Instead, it has been growing, adding more than 6,000 people in the first six months of this year.

“That’s why we fell behind,” he said.

COCKTAIL MENTALITY

Proponents of the arrivals, including Thomas Schaefer, finance minister for the state of Hesse that is home to Frankfurt, argue they will boost the economy and tax revenues.

Restaurant and club entrepreneur Madjid Djamegari anticipates the newcomers will be more interested than the locals in going out during the week, for example.

“The Germans don’t have the after-work cocktail mentality. But people are coming who have different standards, who are willing to pay for service,” said Djamegari, whose latest project is a pop-up bar in a former bank office building.

With a population of just 736,000, against London’s 8.8 million, and an average annual pre-tax salary of 43,600 euros ($51,300), Frankfurt may also be affected by the influx in less congenial ways, tenants rights groups fear.

Rolf Janssen, head of the Frankfurt tenants’ protection association, said his group receives hundreds of calls each week from people worried about evictions or rising rents. Some are in tears and say they have to save on food and clothes to pay the rent.

While German law means it is not possible to easily evict tenants or increase rents sharply, Janssen said, there are loopholes and mistrust between residents and owners has increased in recent years.

Thomas Occupy, activist in the Blockupy movement stands in front of a huge Euro sign at the former headquarters of the European Central Bank (ECB) in Frankfurt, Germany on November 10, 2017. Picture taken November 10, 2017. REUTERS/Ralph Orlowski

Callers say some owners abruptly embark on noisy construction work to intimidate tenants to leave in order to renovate and charge new occupants more, he said.

“Brexit bankers … trump ordinary tenants,” he said.

Michael Mueller, a far Left Frankfurt official who sits on a planning committee preparing for Brexit, is attempting to prevent the state selling further property for high-rise towers.

“I‘m worried Frankfurt will turn into … a millionaire’s ghetto,” he said.

“WE‘RE HALF OF THIS TOWN”

The Left Party, which has its roots in east Germany’s communism, took roughly one tenth of the seats in the parliament in the last election on Sept. 24, pledging in its manifesto to renationalise the banks and “break their power”.

Far-left groups hope the tenants’ concerns could win them even more support.

Slideshow (5 Images)

Blockupy, which staged violent street protests against the European Central Bank when its new offices opened in 2015, and the Interventionist Left, which helped organize protests against the G20, are weighing their next moves.

“People are being pushed out of the city center,” said Interventionist Left activist Felix Wiegand.

“On the other hand, you see the SUVs and those people who have taken over the city as it is were their own. The city’s policy of favoring the rich is infuriating people.”

Far-left groups said they might hold protests at the opening of one of Frankfurt’s new office towers and tenant action groups are starting a petition for affordable housing.

Their campaign poster features a collage of photographs of citizens with the slogan: “We’re half of this town”.

Others may be willing to take more drastic steps.

“There is an increasing readiness to act and willingness to resort to violence at the left wing extremes in recent years,” said Klaus Schroeder, an expert in left-wing extremism at the Free University of Berlin.

“The left believe that they are using violence to achieve a better world and that the banks are the first that have to be eliminated.”

At the protest against the ECB, 7,000 protesters took to the streets, setting police cars on fire and blocking roads with burning stacks of tires. More than 500 were arrested.

Deutsche Bank, Germany’s flagship bank, may offer a taste of what its new neighbors in the financial district can expect.

Since 1990, on the first Thursday of every month, former priest Gregor Boeckermann has gathered with about a dozen others at the bank’s headquarters to protest against free-wheeling capitalism. They recently planted an apple tree nearby.

“I hope the roots will grow up so strong that they will cause it to explode,” Boeckermann said.

($1 = 0.8485 euros)

Writing by John O’Donnell; Editing by Sonya Hepinstall

 

Published at Mon, 20 Nov 2017 15:56:25 +0000

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Asia stocks pause at peaks, ponder U.S. tax muddle

A man looks at a stock quotation board outside a brokerage in Tokyo, Japan, April 18, 2016. REUTERS/Toru Hanai

Asia stocks pause at peaks, ponder U.S. tax muddle

SYDNEY (Reuters) – Asian shares paused at decade peaks and the dollar dipped on Wednesday amid concerns Republican plans for major U.S. tax cuts were running into headwinds even before the Senate releases its own version of the proposals.

A man walks past an electronic stock quotation board outside a brokerage in Tokyo, Japan, September 22, 2017. REUTERS/Toru Hanai

Investors were also keeping a wary eye on Saudi Arabia’s sweeping anti-graft purge and an escalation of tensions with Iran, though oil prices did ease from their highs.

Dealers said EMini futures for the S&P 500 ESc1 slipped 0.2 percent on a report by the Washington Post that Senate Republican leaders were considering a one-year delay in the implementation of a corporate tax cut, a centerpiece of the House plan.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS eased 0.05 percent having hit its highest since November 2007 on Tuesday.

Japan’s Nikkei .N225 fell 0.4 percent, though that followed a jump to its best close since 1992.

The main event in Asia will be Chinese trade figures for October which will give a read on the state of global trade and on whether Chinese demand for commodities is holding up.

China’s exports are seen rising 7.2 percent on a year ago, with imports up a solid 16 percent.

Investors will also keep an eye on President Donald Trump as he wraps up his visit to Seoul on Wednesday and then head to China, where he is expected to press a reluctant President Xi Jinping to tighten the screws further on Pyongyang over the reclusive state’s belligerent pursuit of nuclear weapons.

In the currency market, trading was described as a “random walk” by analysts at Citi with no clear trends to follow.

The dollar was a slim 0.1 percent lower at 94.826 .DXY against a basket of currencies, having again failed to clear resistance around 95.150.

It was 0.2 percent lower on the yen at 113.76 JPY=, but well within the 112.96/114.74 range of the past 12 sessions.

The euro touched a four-month trough at $1.1552 overnight in the wake of disappointing German industrial data, but quickly steadied in Asia to around $1.1597 EUR=.

Wall Street had taken a breather on Tuesday after again making record peaks. The Dow .DJI ended up 0.04 percent, while the S&P 500 .SPX lost 0.02 percent and the Nasdaq .IXIC 0.27 percent.

The S&P 500 financial index .SPSY led decliners with a 1.33 percent fall, in part on concerns a flattening yield curve would crimp profits at banks that borrow short to lend long.

The U.S. yield curve has flattened sharply in the last couple of weeks, with the gap between two- and 10-year yields shrinking to just 68 basis points, the smallest since 2007.

The move largely reflects wagers the Fed is determined to hike in December, pushing up short-term yields. Such a move was likely to ensure inflation stays lower for longer, thus pulling down longer-dated yields and flattening the curve.

Flatter curves are sometimes harbingers of slower economic growth, but can also signal excessive risk taking as investors lend for longer and longer in search of better returns.

Oil markets were dominated by Saudi Crown Prince Mohammed bin Salman’s move to shore up his power base with the arrest of royals, ministers and investors, which an official described as part of “phase one” of a crackdown.

Tensions also escalated between OPEC members Saudi Arabia and Iran, which analysts said did more to rattle the oil market than the prince’s purge.

After reaching a two-and-a-half year top on Monday, Brent crude futures LCOc1 had pulled back a touch to $63.69 a barrel. U.S. crude CLc1 was off 14 cents at $57.06.

Editing by Shri Navaratnam

Our Standards:The Thomson Reuters Trust Principles.

 

Published at Wed, 08 Nov 2017 01:08:26 +0000

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Asia shares mount 10-year top on strong economy, oil gains

Asia shares mount 10-year top on strong economy, oil gains

TOKYO (Reuters) – Asian shares scaled a 10-year high on Wednesday on the back of solid economic growth globally, while oil prices extended a bull run on hopes that major producers will maintain their output cuts.

A man looks at a stock quotation board outside a brokerage in Tokyo, Japan, April 18, 2016. REUTERS/Toru Hanai

European shares are expected to rise, with spread-betters looking at a higher opening of 0.4 percent in France’s CAC and 0.3 percent in Britain’s FTSE.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.9 percent, led by a 1.3 percent jump in South Korea. Japan’s Nikkei soared 1.9 percent.

Investors are focused on the progress of a U.S. tax-cut plan being developed by President Donald Trump and fellow Republicans and on Trump’s announcement of the next head of the Federal Reserve. The White House said he will reveal his Fed pick on Thursday.[nL2N1N50Y2]

“Hopes of U.S. tax cuts, a slight easing in U.S. long-term bond yields since late last month and a rise in oil prices are all positive for Asian shares,” said Yukino Yamada, senior strategist at Daiwa Securities.

“Last month, there were major inflows to high-tech shares in Korea and Taiwan. And GDP of these countries were also strong, showing the strength is spreading to the entire economy, not just within the high-tech sector,” she added.

South Korea’s economic growth accelerated to its fastest growth in seven years last quarter while growth in Taiwan during the same period was the strongest in 2-1/2 years. [nL4N1M21FA]

The advance reading of U.S. GDP for July-Sept also showed healthy growth of 3.0 percent, well above the average of just above 2.0 percent since the financial crisis in 2008-09.

Wall Street’s three major indexes ticked up on Tuesday to end October with their biggest monthly gains since February.

The tax legislation had been expected on Wednesday, but sources said Republicans in the U.S. House of Representatives will delay the release for a day as lawmakers try to overcome differences involving the treatment of retirement savings accounts and state and local taxes.[nL2N1N60JZ]

“If the negotiation gets derailed, that would have a negative impact on markets so we need to be careful,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.

Trump’s decision on the Fed chair is upstaging the start of its two-day policy meeting in Washington on Tuesday, although it is widely expected to leave interest rates unchanged in its statement on Wednesday.

Trump is likely to pick Fed Governor Jerome Powell, who is seen as more dovish on interest rates and thus relatively stock market friendly, sources have told Reuters. [nL2N1N50Y2]

Expectations that Powell will lead the Fed have helped to drive down U.S. bond yields and the dollar this week.

The dollar’s index against a basket of six major currencies stood at 94.71 from last week’s three-month peak of 95.15.

The euro was little moved at $1.1628, though it kept some distance from its three-month low of $1.1574 touched on Friday after the European Central Bank’s stance was perceived to be more dovish than expected.

The dollar fetched 113.94 yen, up slightly on the day but off Friday’s high of 114.45 yen.

The biggest mover in early Wednesday trade was the New Zealand dollar, which jumped 0.8 percent to $0.6899 after the country’s jobless rate sank more than expected to a nine-year low of 4.6 percent. [nL4N1N677C]

Bitcoin hit another record high on Tuesday after CME Group Inc, the world’s largest derivatives exchange operator, said on Tuesday it will launch a futures contract for bitcoin later this year, marking a major step in the digital currency’s path toward legitimacy. [nL4N1N65PG]

It last traded at $6,395, down 0.6 percent compared to Tuesday’s high of $6,449.78.

Oil prices extended a rally which began in early October, largely driven by hopes that oil producing countries will agree to extend an output cut at their meeting at the end of this month.

Brent crude futures hit a two-year high of $61.41 per barrel on Tuesday and stood at $61.17 per barrel in Asia trade on Wednesday, up 0.4 percent.

U.S. crude futures held at $54.65 per barrel, up 0.5 percent on the day, staying near its eight-month high of $54.85 hit on Tuesday.

The spread between the two contracts reached $6.99 on Tuesday, hitting the widest in more than two years, due to worries about supply disruption from Kurdistan.

“Oil prices may have risen a bit too much already on expectations of the production cut extension. I would say Brent is likely to ease below $60 early next year,” said Tatsufumi Okoshi, senior commodity economist at Nomura Securities.

Editing by Kim Coghill

 

Published at Wed, 01 Nov 2017 07:05:57 +0000

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Japan shares at two-decade top, yen near three-month low as Abe wins

 

Japan shares at two-decade top, yen near three-month low as Abe wins

SYDNEY (Reuters) – Japanese shares jumped on a weaker yen on Monday as an election win for Shinzo Abe’s ruling bloc gave a green light for more policy stimulus, while the euro eased as Spain’s constitutional crisis aggravated concerns about political unity in the region.

Passersby are reflected in an electronic stock quotation board outside a brokerage in Tokyo, Japan, October 23, 2017. REUTERS/Issei Kato

The U.S. dollar was the major beneficiary as President Donald Trump and Republicans took a small step toward tax cuts, boosting Wall Street stocks and lifting bond yields.

Japan’s Nikkei raced up 1 percent to its highest since 1996 after Prime Minister Abe looked to have easily won in national elections over the weekend.

MSCI’s broadest index of Asia-Pacific shares outside Japan held steady, while Singapore’s main index reached its highest in over two years.

Investors assumed Abe’s victory would allow the Bank of Japan to continue with massive monetary easing that depresses bond yields and the yen, even as the U.S. Federal Reserve seems determined to hike rates again in December.

“This should extend the lifespan of ‘Abenomics’, including the BOJ’s mega stimulus,” wrote analysts at the Blackrock Investment Institute.

“We see the outcome as a mild positive for Japanese equities, and as a mild negative for the yen and Japanese government bonds.”

The dollar rose 0.2 percent to 113.74 yen and briefly touched its highest since mid-July at 114.09. It faces stiff resistance at the July top of 114.49, but a break would open the way to its March peaks around 115.51. Against a basket of currencies, the dollar edged up 0.1 percent.

The yen even slipped against the euro, which was having its own troubles as the Spanish government urged Catalans to accept its decision to dismiss their secessionist leadership and to take control of the restive region. [L8N1MX0HS]

The nation’s biggest political crisis in decades enters a decisive week as Madrid tries to impose its control, although investors have so far assumed the political strife would not spread to elsewhere in the European Union.

A man is reflected in an electronic stock quotation board outside a brokerage in Tokyo, Japan, October 23, 2017. REUTERS/Issei Kato

The euro eased only a modest 0.13 percent on Monday to $1.1770 and has strong chart support around $1.1729.

LESS FOR LONGER

The single currency faces another hurdle on Thursday when the European Central Bank holds a policy meeting amid much talk it will cut back the amount of assets it buys every month, but also extend the program.

A Japan Yen note is seen in this illustration photo taken June 1, 2017. REUTERS/Thomas White/Illustration

“As we have argued for some time now, the length of time the (quantitative easing) program runs for matters more than monthly size,” said analysts at RBC Capital Markets.

“So while we look for a reduction by at least 30 billion euros in net terms … we also expect that the ECB will keep the program open ended.”

Asian share markets caught some tailwind from Wall Street’s record finish on Friday when the passage of a U.S. Senate budget resolution bolstered speculation that President Trump’s tax-cut plan may move forward.

The Dow ended Friday with gains of 0.71 percent, while the S&P 500 rose 0.51 percent and the Nasdaq 0.36 percent.

In commodity markets, a firmer dollar nudged gold down 0.3 percent to $1,276.80 an ounce.

Oil prices edged ahead on supply concerns in the Middle East and as the U.S. market showed further signs of tightening while demand in Asia keeps rising.

Brent crude rose 13 cents to $57.88 a barrel, while U.S. crude futures added 25 cents to $52.09.

Editing by Peter Cooney and Sam Holmes

Our Standards:The Thomson Reuters Trust Principles.

 

Published at Mon, 23 Oct 2017 05:22:18 +0000

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World stocks stumble after all-time high, kiwi takes a dive

Traders work in front of the German share price index, DAX board, at the stock exchange in Frankfurt, Germany, July 3, 2017. REUTERS/Staff/Remote

 

World stocks stumble after all-time high, kiwi takes a dive

LONDON (Reuters) – World stocks set a fresh record high before stalling in Europe on Thursday, as the longest winning streak for Japanese stocks since 1998 and the first close above 23,000 for Wall Street’s Dow index helped to offset nerves in Spain.

Traders were marking 30 years to the day since the 1987 Black Monday stock market crash but there couldn’t have been a greater contrast as equity markets have continued to clock up milestone after milestone.

The Nikkei enjoyed its 13th straight daily rise, helping the MSCI index of global stock markets .MIWD00000PUS – now up 17.6 percent for the year – add to its long list of record highs.

It wasn’t all one-way traffic, though.

European shares took their biggest tumble in almost two months after a new batch of third-quarter results brought some disappointments, notably from Anglo-Dutch consumer goods titan Unilever, French advertising group Publicis and Germany’s Kion.

They then took another lurch lower as signals emerged from Spain that Madrid was gearing up to invoke a never-before-used clause to re-impose central rule over the restive region of Catalonia.

The euro EUR=EBS trimmed gains that had taken it to a three-day high against the dollar, while Spanish bond ES10YT=TWEB markets gave up their early morning gains.

“Everyone is watching this with great interest but it just looks like a standoff,” said Saxo Bank FX strategist John Hardy, saying the situation was something of a ‘catch-22’ for Catalonia.

A declaration of independence would see it lose its prized autonomy ,while calling a regional election could mobilize Catalan voters who would prefer to stay part of Spain.

“But the market is not expressing any real fear over this and I think that is justified,” Hardy added.

The other big currency market move came from the New Zealand dollar. It was sent skidding to its lowest since May after the left-leaning Labour Party won the support of the minor nationalist New Zealand First party to form a ruling coalition.

It ended weeks of political guessing games but fanned concerns that the Labour Party’s hardline policies on immigrants and foreign ownership could hurt investor sentiment.

The New Zealand dollar NZD=D4 slid as much as 1.4 percent to $0.7047, which as well as the 4-1/2 month low was also the biggest percentage decline since November 2016.

CHINA FOCUS

Among the other headlines, China’s economic growth cooled slightly to 6.8 percent in the third quarter from a year earlier, from the second quarter’s 6.9 percent.

A modest loss of momentum had been expected as the government reins in the heated property market and cracks down on riskier lending.

Other data showed that China’s industrial output rose a stronger-than-expected 6.6 percent in September, while retail sales also outperformed. Property sales fell though for the first time in over two years.

The Chinese yuan and stocks eased, with Shanghai .SSEC falling 0.4 percent.

“The GDP reading could weigh negatively on both mainland stocks and currency markets as traders may position for further weakness into year-end, suspecting financial curbs will continue to have a negative impact on growth in China,” said Stephen Innes, head of Asia-Pacific trading at OANDA in Singapore.

The dollar index against a basket of six major currencies was broadly steady at 93.340 .DXY.

The index ended a four-session winning run overnight on lacklustre U.S. data but briefly resumed its climb after the 10-year Treasury yield US10YT=RR spiked 4 basis points with safe-haven bond prices falling on better investor risk appetite.

The dollar was little changed at 112.940 yen JPY= after climbing 0.6 percent overnight. The euro nudged up 0.15 percent to $1.1802 EUR=.

The term of current Fed Chair Janet Yellen’s expires in February and investors are keen to see whom U.S. President Donald Trump will pick as her replacement. The White House said Trump would announce his decision in the “coming days”.

In commodities, Brent crude oil futures LCOc1 dropped 1.2 percent to $57.43 a barrel and U.S. WTI CLc1 dropped 1.5 percent.

Brent had risen to a three-week high of $58.54 a barrel on Wednesday on worries about tensions in Iraq and Iran, but lost steam after a surprising drop in U.S. refining rates and an unexpected build in fuel stocks signaled slower demand in the world’s top oil consumer.

Reporting by Marc Jones; Editing by Gareth Jones

 

Published at Thu, 19 Oct 2017 09:01:43 +0000

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Asia shares at 10-year high ahead of U.S. data, China Congress

 

Asia shares at 10-year high ahead of U.S. data, China Congress

TOKYO (Reuters) – Asian stocks edged to a 10-year high on Friday thanks to expectations of brisk global growth, although investors held off chasing shares higher ahead of U.S. economic data and next week’s Chinese Communist Party Congress.

MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.15 percent, having gained 3.6 percent so far this month. Japan’s Nikkei edged up 0.2 percent to another 21-year high.

Wall Street shares dipped slightly on Thursday, pulled down by a fall in AT&T after the telecoms company reported subscriber losses in its cable TV business.

But MSCI’s broadest gauge of the world stock exchanges covering 47 markets also stood at record levels, extending its gains so far this year to 17 percent.

China’s trade data showed both growth in exports and imports accelerated in September, with imports beating expectations, adding to the evidence of recent resilience in China’s economy.

“It is hard to think the current ‘goldilocks economy’ will suddenly change,” said Nobuyuki Kashihara, head of research group at Asset Management One, referring to an economy that is neither too hot, or too cold, but just right.

“Stock prices will continue to rise in line with growth in corporate earnings globally.”

On top of a broad consensus that the global economy is in its best shape in recent years, expectations that U.S. President Donald Trump would push through a tax cut also encouraged investors.

“While we don’t know the details of the tax reforms, the announcement of a plan to make the biggest tax overhaul in three decades triggered a fresh wave of reflation trade,” said Mutsumi Kagawa, chief global strategist at Rakuten Securities.

In currencies, the dollar lost some steam in recent days as U.S. bond yields appeared to have peaked for now, with minutes from the last U.S. Federal Reserve meeting showing policymakers remained divided on U.S. inflation prospects.

The next big test for the dollar is U.S. consumer inflation figures due later in the day.

“The data will likely be disrupted by the hurricanes. But if inflation is picking up, that is still positive for the dollar,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.

On top of the near-term inflation readings, investors are also looking to who Trump will nominate as successor to Fed Chair Janet Yellen, whose term expires next February.

White House Chief of Staff John Kelly said on Thursday that Trump was “some time away” from making a decision, while another official said Trump had met with Stanford University economist John Taylor to discuss the job.

Another main focus is China’s 19th Communist Party Congress that begins on Oct 18, where President Xi Jinping is expected to lay out new policy initiatives and consolidate his power for a second five-year term.

”Specific economic policies won’t be laid out at this

meeting, but official statements and who ascends to

power will set the tone for the third Plenary Session … in March 2018, which will give more specifics about China’s economic agenda for the next five years,” said analysts at RBC Capital Markets.

The euro traded at $1.1849, slipping from Thursday’s high of $1.1880 but has kept weekly gain of almost 1 percent, though the currency remains dogged by the crisis around the Catalonian independence movement’s campaign to split from Spain.

The yen was little moved at 112.10 yen per dollar, though at that level, it is on course for a slight gain on the week, which would be its first in five weeks.

Bitcoin soared more than 4 percent after Thursday’s 13 percent gain to hit a record high of $5,846, a gain of 450 percent on the year.

The Chief Financial Officer of JPMorgan Chase & Co said the firm is open minded on the potential use cases in future for digital currencies, appearing to dial back comments last month from his boss, Chief Executive Officer Jamie Dimon, that bitcoin was a “fraud”.

Copper prices held firm after hitting a one-month high on Thursday as optimism over the demand outlook from major consumer China fueled buying.

London copper futures were at $6,862 a tonne early on Friday.

Oil prices edged up on Friday as both U.S. crude production and inventories declined. U.S. crude ticked up 0.5 percent to $50.87 a barrel. Brent crude rose 0.4 percent to $56.49 per barrel.

Reporting by Hideyuki Sano; Editing by Simon Cameron-Moore

 

Published at Fri, 13 Oct 2017 03:42:47 +0000

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Asian shares hit decade highs, Catalan fears ease

 

Asian shares hit decade highs, Catalan fears ease

SYDNEY (Reuters) – Asian shares jumped to the highest in a decade on Wednesday as Wall Street scaled all-time highs, while the dollar loitered around two-week lows on worries President Donald Trump’s tax plan could stall.

The euro traded around a 10-day peak after Catalonia’s leader suspended plans to leave Spain, easing near-term concerns about euro zone stability.

The MSCI’s broadest index of Asia-Pacific shares outside Japan climbed 0.5 percent to 546.38, a level not seen since December 2007.

Australian stocks jumped to 1-1/2 month highs while South Korea’s KOSPI added 0.6 percent to within a whisker of record peaks.

Japan’s Nikkei edged closer to a 21-month top, even as scandal-hit Kobe Steel extended losses.

Sentiment was boosted after the International Monetary Fund upgraded its global economic growth forecast for 2017 and 2018, driven by a pickup in trade, investment, and consumer confidence.

“A risk-on mood has set in and money is flowing out of bond funds into equities funds,” said Hugh Dive, chief investment officer at Atlas Funds Management.

“One of the biggest drivers of global equities is the United States and some of the macro data coming out from there has been quite positive. There is also this view that China is traveling much better than many people had expected.”

The three major Wall Street indices set record highs again, with Dow up 0.3 percent, the S&P 500 adding 0.2 percent and the Nasdaq inching 0.1 percent higher.

In currency markets, the dollar held around a two-week trough as U.S. President Donald Trump’s escalating war of words with Senator Bob Corker raised concerns about the administration’s ability to pass promised reforms.

The dollar index steadied at 93.314 against a basket of currencies, around the lowest level since Sept.29.

FED MINUTES

The greenback was also under pressure amid ongoing uncertainty over the next Federal Reserve Chairman, with the predictions market site, PredictIt, favoring Fed governor Jerome Powell as the most likely candidate.

While Powell is regarded as more hawkish than incumbent Janet Yellen, whose term expires in February, analysts say he might be less aggressive in winding back stimulus than Kevin Warsh, another possible candidate for the role.

Investors will keep an eye on the minutes of the Fed’s September meeting due later in the day, which might help bolster views of a December rate hike.

The euro held around $1.1803, not far from Tuesday’s high of $1.1825, after Catalonian President Carles Puigdemont called for talks with Madrid to discuss the region’s future.

The gesture tempered fears of immediate unrest in a major euro zone economy and cheered investors. Madrid’s IBEX 35 Index futures added 1.1 percent, after the cash IBEX stock index closed down 0.9 percent on Tuesday.

“Markets were on edge, and no doubt so was he,” said David Plank, head of Australian economics at ANZ Banking Group, referring to Puigdemont’s address at Catalonia’s parliament.

“But the declaration for independence did not come, at least not explicitly,” Plank said. “This issue remains extremely fluid. But one thing is clear – this is not going to go away quickly or quietly.”

In commodities, U.S. crude rose 12 cents to $51.04 per barrel and Brent added 7 cents to $56.68 on signs of tighter near-term supply.

Gold prices came off their highest in two weeks, with spot gold at $1,287.61 an ounce.

Reporting by Swati Pandey; Editing by Sam Holmes

 

Published at Wed, 11 Oct 2017 03:58:55 +0000

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Quest: Are Theresa May’s days in charge numbered?

Photo

Brexit trouble for Theresa May
Brexit trouble for Theresa May

Quest: Are Theresa May’s days in charge numbered?

  @richardquest

Quest’s Profitable Moment

I wonder if we will look back on this week as the turning point when it became obvious Theresa May’s prime ministership is over. Her keynote speech to the Tory conference was by every conclusion a mishap-filled disaster.

Firstly, a prankster managed to get on the stage and handed her a P45 — the form used in the U.K. for dismissal. Then May got a coughing fit and had to be handed a throat lozenge by the chancellor. Finally, some of the letters on the screen behind her fell off while she was finishing up.

At the moment, the only reason to keep Theresa May is the alternatives are grim, if not worse. The foreign secretary, Boris Johnson, is a brilliant man suffused by his own ambition. Everyone else is either dull, dangerous or deluded. So, Mrs. May continues.

It would be a grave mistake for the European Union to engage in schadenfreude, rubbing their hands in glee at this confusion. Some clearly hope the British confusion will enable the EU to “get one over” on the U.K., punishing them for leaving and sending a warning to other upstarts. That would be disaster. A failed negotiation may hurt the Brits more than the rest, but in the long run everyone will suffer.

Theresa May’s days as prime minister are numbered. What comes after may be worse. The Brexit negotiations are stuck in phase one and time is running out. Politics as normal must not be the way forward on either side if we are to avert disaster of the worst kind.

 

Quick takes

Warren Buffett gets into truck stop biz on the same day he trolls Trump, GOP

More Uber drama: Former CEO gets slapped down. Japan’s SoftBank invests

Wells Fargo slammed by Elizabeth Warren, accused of lying to Congress

Shock over Equifax/IRS deal at hearing that Monopoly Man photobombed

Echoes of the dotcom bubble as China’s tech stocks party like it’s 1999

What’s next

Jobs, jobs, jobs:The U.S. Labor Department is set to release September jobs numbers on Friday. The unemployment rate is expected to reflect layoffs linked to Hurricanes Harvey and Irma, which hit hard in Texas and Florida.

Big banks share earnings:It’s a big week for investors who keep an eye on big banks. JPMorgan and Citigroup report earnings on October 12. PNC, Bank of America and Wells Fargo will follow suit the next day.

 

Published at Fri, 06 Oct 2017 04:10:24 +0000

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Political Tremors In Germany And Spain

 

Political Tremors In Germany And Spain

by THE MOLE

The datacenter hosting my VPS’ decided to hand me and a bunch of its client a crate of lemons when moving all its servers to a new location without previously advising its sub vendors. Well at least that is what mine is claiming and if you search for quickpacket on twitter you do indeed find a bunch of angry complaints on how the migration was handled. Now for me that means most of my VPS’ have been down since Sundays, leaving me hanging high and dry. Fortunately the Zero’s VPS is hosted somewhere else, so at least all you Zero subs will not be deprived of the signals today.

Now you probably know the old saying: if life hands you a bunch of lemons, make lemonade! While I unfortunately won’t be able to properly post my usual charts and campaign updates I believe the political crisis currently unfolding here here in Spain as well as in Germany may be worth summarizing as there appear to circulate a lot of myths and misinformation on both ends. And as a born German come American now living in Spain I do feel that I am somewhat qualified to offer my perspective on what is going on and where I believe things are heading here in Europe.

Germany

angela-merkel-headshot

So let’s start with Germany, a subject pretty dear to my heart as I was born there and spent about 12 years of my life living in various parts of the country. Apologies for the picture but that is literally the friendliest snapshot of Chancellor Angela Merkel I was able to find. She’s not exactly a people person and the sweeping changes to Germany she spearheaded over her past three administrations do to some extent reflect the fact that she grew up under the East German regime in which she was a low level player in her early youth. She’s an extremely smart woman who holds a degree in quantum chemistry and was awarded prizes for her proficiency in Russian and Mathematics.

After the unification of Germany in 1989 the Democratic Awakening party Merkel had previously joined merged with West Germany’s CDU. Then Chancellor Helmut Kohl took her under his wings as sort of a protégé and the rest is history as the saying goes. After 12 years in power she is now embarking on her fourth term as German chancellor, but due to various controversial policies during her reign, mass immigration and a shift in energy policy being the most salient, a new nationalist party called the Alternative Für Deutschland (AfD) managed to more than double its percentage from under 5% to slightly over 12% during yesterday’s federal elections. Plus several of her allies and previous coalition partner SPD are now starting to distance themselves from Mrs. Merkel, not surprisingly so as their own election results yesterday took a major hit as well.

It is difficult to project forward from here as, just with the Federal Reserve, one should never under estimate the political skill of Angela Merkel. She has repeatedly run circles around her opponents and I am pretty confident that she will once again find a way to form a coalition and determine the course of Germany over the next four years to come. However that said, the easy days are over for Mrs. Merkel as she now will face not only the conservative AfD but also a strengthened FDP as well as both an embattled CDU and CSU (the Bavarian version of the CDU) which are now realizing that they are facing a fight for political relevancy.

Now I do have a pretty unique perspective on the situation as I left Germany in 1991, just after the reunification. The way I still remember Germany is what some people today may call antiquated and backward as much of the political shift toward the left happened after I was long gone. I suspect that previous chancellors like Helmut Kohl or Willy Brandt would be considered political extremists in this day and age but if one peruses the election program of the CDU or SPD from about 25  years ago then you’ll find that there’s a lot of overlap between them and what the AfD stands for today. You may disagree on that front but there simply is no way that Germany will be taken over by Neonazi right wing extremists. The German people have learned from history and they would never ever let this happen again.

I actually think that this may turn out to be a blessing in disguise, not so much for Mrs. Merkel and her CDU, but for Germany, as it once again gives the political center a chance to reassert itself. The last thing the liberals want to do is to continue ignoring or outright ostracizing a large percentage of its own population for political opinions that were considered mainstream just two or three decades ago. Because that is exactly what has happened over the past few years and once the center disappears completely what you may get is polarization on both fronts, which puts you on the fast track to civil war. And Germany in chaos always means Europe in chaos. I hope the Germans will continue to remember their lesson and use the coming four years as an opportunity to engage in mutual dialog and to prevent the rise of political extremism on both sides, the right and the left.

Spain

Spain_manifestacion

When it comes to Spain I am somewhat stunned by the overwhelming international support that Catalonia seems to be receiving in its struggle for independence. I wonder if California or Texas attempting to secede from the United States would receive a similar response. Be this as it may, this has been a train wreck in the making for a good part of the past decade now and the independista movement is just now receiving global recognition. Which always surprised me a little as a break off from Spain may send shockwaves through the entire European Union.

As I am a guest here I will not post my personal opinion on the subject as I believe this is something that Spain and Cataluña will have to sort out amongst each other. You will probably come across a lot of opinion pieces on the subject with both sides presenting very compelling arguments. All I would like to offer however is this: Although I do believe that secession would be terrible for both Spain and Cataluña as well as the rest of Europe, I also believe that all people have the right to self determination and to decide their own future. If a large part of a region wants to establish independence then it should be allowed to at least pursue that course.

It’s a bit like owning a dog and keeping it on a leash at all times. The more you try to exert control, the more eager it will be to run off at the first opportunity. The more space and love you give it the more it wants to stick around. Clearly a lot of political mistakes have been made and instead of demonizing Cataluña Madrid should take a good look at itself and ask why the Catalans are so eager to separate themselves from Spain in the first place. On the other side the Catalans of course need to carefully evaluate the pros and cons of secession, especially on a long term basis. A decision made as a result of regional pride and frustration about unfavorable policies coming out of Madrid may in the long term lead to unintended consequences.

But the die is cast now and increasing exchanges between pro-independence groups and Spanish loyalists will only accomplish exactly what I have warned about in my chapter on Germany – increasing polarization on both sides. Whether this in the end devolves into another regional civil war remains to be seen but I do believe that the potential for violent conflict exists as the Catalans are very proud and politically engaged people, and are not expected to simply stand by idly if they feel treated unfairly.

It’s important to remember that the Catalans always have considered themselves to be Catalans first and then perhaps Spaniards. Unlike down here in Valencia where Valenciano is used actively alongside with Spanish the Catalans insist on speaking mainly Catalan and will often refuse to engage you in Spanish. This shows a lot about their passion and the importance they put on their own regional language, culture, and of course their political future.

In closing, I wouldn’t worry too much about Germany at the current time and instead look at Spain for future signs of trouble. While Merkel will continue to dominate the international headlines it is Spain that is sitting on a proverbial powder keg that could go off at a moment’s notice.

 

Published at Mon, 25 Sep 2017 13:35:15 +0000

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Asia shares settle after rally, dollar squares losses on Trump comments

 

Asia shares settle after rally, dollar squares losses on Trump comments

TOKYO (Reuters) – Asian stocks steadied on Wednesday, taking a breather after the previous day’s surge, lacking the momentum to keep up with a global rally spurred by gains for tech shares on Wall Street and miners in Europe.

The dollar initially wobbled against the yen following campaign-rally threats by U.S. President Donald to force a government shutdown over funding a border wall, but it eventually squared the losses.

Spreadbetters expected a mixed start for European stocks, forecasting Britain’s FTSE .FTSE would open 0.15 percent lower, Germany’s DAX .GDAXI to start 0.05 percent higher and France’s CAC .FCHI to open unchanged.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS, which initially inched up to a two-week high, pulled back to stand little changed following a 0.7 percent rally on Tuesday.

Australian stocks were down 0.3 percent and South Korea’s KOSPI .KS11 gave back earlier modest gains to slip 0.1 percent.

Japan’s Nikkei .N225 bucked the trend and rose 0.3 percent, lifted as the dollar strengthened against the yen.

The Nikkei took its cues from Wall Street, which saw the Dow .DJI rise 0.9 percent, the S&P 500 .SPX climb 1 percent and the Nasdaq .IXIC gain 1.4 percent on Tuesday as technology shares rallied. [.N]

European stocks had also risen overnight, supported by upbeat results from miners and a weaker euro. [.EU]

Financial markets have been buffeted in recent weeks by heightened tensions on the Korean peninsula, turmoil in the White House, and growing doubts about Trump’s ability to fulfil his economic agenda.

Stocks, however, continue to attract buyers in an environment where bond yields remain relatively low and companies have largely notched up strong earnings.

“The return of bargain hunters after a shallow correction in U.S. markets again demonstrates that investors are reluctant to reduce exposure to equity markets given low bond yields, solid profit growth and a lower US$,” said Ric Spooner, chief market analyst at CMC Markets in Sydney.

“In a situation where earnings yields on stocks remain attractive in relation to bond yields, investors are reluctant to respond too negatively to ‘risk events’ unless they represent a clear and present short-term danger.”

The dollar was flat at 109.535 yen JPY=, coming off the day’s low of 109.370 plumbed after President Trump told supporters in Arizona “If we have to close down our government, we’re building that wall” in reference to his pledge to tighten immigration at the U.S.-Mexican border.

The greenback remained clear of a four-month low of 108.605 yen plumbed last week, when turmoil in the White House and geopolitical tensions took a toll on the currency.

“The dollar had been caught in a downtrend amid ebbing expectations towards U.S. inflation. It requires a surge in U.S. shares to break this pattern and that is what happened as Wall Street rallied,” said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.

The dollar also drew support as U.S. Treasury yields rose and pulled away from two-month lows as some of the risk aversion that gripped the broader markets last week began to ebb.

The dollar index against a basket of six major currencies was little changed at 93.514 .DXY after rising 0.5 percent the previous day.

The euro was steady at $1.1759 EUR= after slipping about 0.5 percent overnight following weaker-than-expected German investor confidence.

A gathering of global central bankers on Friday in Jackson Hole, Wyoming, has also prompted investors to rebalance their currency positions ahead of the event, leading them to reduce some of their short dollar bets.

Speeches from Fed Chair Janet Yellen and European Central Bank President Mario Draghi will headline the event, although neither are expected to announce any significant policy.

In commodities, Brent crude LCOc1 slipped 0.35 percent to $51.69 a barrel after data from the American Petroleum Institute showed a crude stockpile decline largely in line with expectations and a surprise build in gasoline inventories.

Improving Libyan output also added to oversupply concerns in the crude oil market. [O/R]

Copper retreated from a three-year high, and other base metals also fell or trimmed gains, as speculators and funds locked in some profits after a steep rally. [MET/L]

Copper on the London Metal Exchange CMCU3 was down 0.3 percent at $6,562.50 per tonne after striking $6,649 on Tuesday, the highest since November 2014.

Spot gold XAU= was a shade higher at $1,285.50 an ounce, after losing 0.5 percent overnight as the precious metal felt the pressure from a stronger dollar. Spot gold had reached a nine-month high above $1,300.00 an ounce on Friday.

Reporting by Shinichi Saoshiro; Editing by Shri Navaratnam and Eric Meijer

 

Published at Wed, 23 Aug 2017 05:35:29 +0000

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These Oil Stocks Are at Risk From Venezuela’s Chaos

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These Oil Stocks Are at Risk From Venezuela’s Chaos

By Robert Gray | Updated August 21, 2017 — 6:24 AM EDT

Political chaos and troubled times in Venezuela’s oil patch are posing problems for a number of international oil companies, according to a recent report in Barron’s.

The story notes that Venezuela has some 300 billion barrels of proven oil reserves, but it cites Credit Suisse analysts who write that the country’s oil production has fallen by more than half to just over 2 million barrels from 3.3 million barrels in 2004.

And of course the slide in crude prices over the past few years is expected to weigh on production and profits in the South American country. (see also: Venezuela: 4 Reasons Why This Country May Go Under).

Plus there’s the threat of broader sanctions on Venezuela (see also: Oil Prices May Spike as Odds Increase of US Sanctions on Venezuela).

A History of Bad Business

Venezuela’s lack of investment in its state oil company — Petroleos de Venezuela or PDVSA — may leave it crippled even if the current political regime were overturned, according to Barron’s, which also notes the nation’s checkered past with foreign oil firms left holding contracts that Venezuela has backed out of in years past. In fact, Exxon Mobil Corp. (XOM) and ConocoPhillips Co. (COP) are still in arbitration with Venezuela over 2007 government actions.

The oil companies are apparently angling for better results: Schlumberger NV (SLB) has severely limited activity since the second quarter of 2016 until it has visibility on getting paid, per Barron’s. The story points out the international and national oil companies with the most exposure to Venezuela: Chevron Corp. (CVX), France’s Total SA (TOT), Repsol SA of Spain (REPYY), Eni SpA (E) from Italy, and Russia’s Rosneft.

Rosneft has provided $6 billion in financing to Venezuela, which used its Citgo refineries in the U.S. as collateral in the deal last fall, per Barron’s. The Russian company has oil-for-loan deals with the government and state-run PDVSA, and the two have joint ventures together—although Barron’s points out that many of them have not been developed yet due to lack of funding by the state company.

The Credit Suisse research note posits that Rosneft’s loans may get some priority over other payments, adding that China has more exposure to Venezuela and those loan repayments “appear to be behind schedule.”

 

Published at Mon, 21 Aug 2017 10:24:00 +0000

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Asian shares fragile as Trump turmoil, Korea tensions weigh

 

Asian shares fragile as Trump turmoil, Korea tensions weigh

TOKYO (Reuters) – Asian shares were fragile on Monday as investors remained unconvinced about U.S. President Donald Trump’s ability to fulfill his economic agenda, even as the departure of his controversial policy strategist raised hopes of some progress.

Japan’s Nikkei shed 0.3 percent, hitting a 3-1/2-month low, shrugging off a Reuters poll which showed confidence at Japanese manufacturers rose to its highest in a decade in August.

MSCI’s broadest index of Asia-Pacific shares outside Japan was barely in the black thanks to modest gains in China, but many markets, including Australia and South Korea, were in the red.

European shares are expected to dip, with spread-betters seeing a lower opening of 0.3 percent in Britain’s FTSE, and 0.2 percent in France’s CAC.

S&P Mini futures were down 0.1 percent at 2,424, not far from their one-month low of 2,419.5 touched on Friday.

Wall Street shares got only a short-lived boost on Friday after Trump fired White House chief strategist Steve Bannon.

“Markets seem to think that the administration will remain fragile and its ability to carry out its policies will be hampered even after Bannon’s departure,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.

Although Bannon’s departure removes a major source of friction within the White House, Trump’s attacks on fellow Republicans following violence in Virginia earlier this month have isolated him, prompting some Republicans to begin questioning Trump’s capacity to govern.

Investors were also wary of any flare-up of tensions between North Korea and the United States as U.S. troops and South Korean forces started a joint exercise on Monday.

Many investors suspect Pyongyang might respond to the latest drill with more sabre-rattling, such as missile tests, although it has said last week it delayed a decision on firing four missiles toward Guam, home to a U.S. air base and Navy facility.

Tech-heavy Korean shares – one of the best performers globally for much of this year – have lost momentum since last month, partly on worries about escalating tensions in the Korean Peninsula.

JACKSON HOLE

In the currency market, the dollar was also hampered by political uncertainty in Washington.

Against the yen, the dollar fetched 109.24 yen, not far from Friday’s four-month low of 108.605.

The euro stood at $1.1750, stuck in its rough $1.17-$1.18 range in the past two weeks.

Investors are looking to European Central Bank chief Mario Draghi’s comments later this week at a meeting of the world’s central bankers in Jackson Hole, Wyoming. But sources told Reuters last week he will not deliver any fresh policy messages.

Federal Reserve Chair Janet Yellen’s keynote speech at the symposium will also be a main attraction for markets.

Comments last week from Fed officials suggested the stock market’s steady rise, still low long-term bond yields and a sagging dollar are girding the Fed’s intent to raise interest rates again this year despite concerns about weak inflation.

“People focus on inflation but in the Fed’s minutes policymakers spend a lot of time discussing whether bond yields are too low or asset prices are too high. If Yellen questions market stability, markets will expect a tighter policy,” Hiroko Iwaki, senior bond strategist at Mizuho Securities.

The 10-year U.S. Treasuries yield slipped to as low as 2.162 percent on Friday – its lowest since late June – and last stood at 2.199 percent.

Oil markets were stable, holding on to Friday’s big gains even though rising U.S. output weighed on hopes the market will tighten with crude inventories down 13 percent since March.

U.S. crude futures fetched $48.46 per barrel, down 0.1 percent while Brent futures were down 0.2 percent at $52.63 per barrel.

Editing by Kim Coghill and Jacqueline Wong

Published at Mon, 21 Aug 2017 05:55:07 +0000

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Frankfurt and Dublin make bankers feel wanted in battle for Brexit jobs

Frankfurt and Dublin make bankers feel wanted in battle for Brexit jobs

LONDON/DUBLIN (Reuters) – “I’m here to send you the regards of the Federal Chancellor. I am entitled to tell you we want you in Germany.” This private message from Angela Merkel, delivered by a regional politician to Wall Street bankers last year, is having the desired effect.

Frankfurt, along with Dublin, is emerging on top in the battle to draw highly-paid banking jobs – and the tax revenue that they bring – away from London before Britain’s departure from the European Union in March 2019.

Germany has favored a subtle approach, with Chancellor Merkel saying little if anything in public on what is a sensitive issue at home. Instead she relied on Volker Bouffier, prime minister of the state of Hesse where Frankfurt is located, to take her invitation to New York in November, according to three sources familiar with the discussions.

Irish leaders have been less reticent, but both countries have sent the same welcoming message to U.S., Japanese and other foreign banks – despite the public unpopularity of bankers that still lingers after the global financial crisis.

While Paris and Amsterdam are set to lure one or two major lenders, Germany and Ireland have so far secured the bulk of commitments from big-name banks.

Even then, the work of lobbyists is not over: they are pushing to host the huge business of clearing deals in euro-denominated securities, now dominated by the British capital.

Banks have been undertaking legal, financial and economic analysis in choosing new bases for their EU business if it can no longer be done from London. But they also need to know the political climate will be favorable.

“Bankers want reassurance that the government wants them,” one senior banking executive told Reuters. “Business does care about political sentiment towards them. There’s a reason: if there are problems you know that government will use its powers to help you.”

The largest global banks in London have indicated that about 9,600 jobs could go to the continent or Ireland in the next two years, though few have yet moved, according to public statements and information from industry sources.

In recent weeks Morgan Stanley, Citi and Bank of America as well as Japan’s Nomura, Mizuho and Sumitomo Mitsui have announced decisions for new EU headquarters, all opting for Frankfurt or Dublin.

These cities’ success follows year-long campaigns, as government agencies and lobby groups staged a charm offensive with the banks unseen since the 2007-09 crisis.

BAILOUT MEMORIES

Merkel, who is seeking re-election next month, left city and Hesse officials to do the rounds in New York. That included the one-on-one meetings with senior executives on Wall Street when Bouffier passed on her message.

German taxpayers had to fund a series of bank bailouts during the crisis, and the bad memories remain due to Deutsche Bank. While Germany’s biggest bank did not needed rescuing, it has run up a litigation bill of 15 billion euros ($17.5 billion) since 2009 due to extravagant market bets and misconduct.

Local officials have had fewer inhibitions than the national politicians. The Frankfurt Main Finance lobby group went on more than 50 trips to foreign banks’ home bases in the past year. “We’ve had indications that two thirds of the major banks’ moves will be to Frankfurt,” lead campaigner Hubertus Vaeth said.

Morgan Stanley, Citi and JPMorgan say Frankfurt will be their EU trading base after Brexit. However, Vaeth told Reuters: “The strategy was to be subtle. There was no glee or triumphalism.”

As a medium-sized provincial city, Frankfurt has also been proclaiming its cultural attractions. That involved taking Wall Street firms to the city’s English-language theater and Japanese bankers to see the Eintracht Frankfurt soccer team play.

Ireland has adopted similar sporting tactics. When Dublin hosted an American Football game between Boston College and Georgia Tech last year, government ministers worked the room at a dinner of 500 executives from Boston and Atlanta, including State Street CEO Jay Hooley.

The Irish political welcome has been more evident. New Prime Minister Leo Varadkar, building on work by his predecessor Enda Kenny, has met several bank bosses and posted a picture on his website of him smiling with Bank of America CEO Brian Moynihan.

Politicians posing with bankers had been close to anathema since a collapse of the Irish financial system forced the country to take an international bailout in 2010, bringing austerity policies which hurt voters badly.

An IDA Ireland sign is seen in the IDA Ireland offices in London, Britain, August 14, 2017.Hannah McKay

EXPENSE AND DISRUPTION

Extra banking jobs and tax revenue are vital for Ireland, a small economy that has relied for decades on foreign investment.

Having attracted all 10 of the world’s largest pharmaceutical companies as well as technology firms such as Google, Facebook and Apple, Ireland moved pre-emptively to offset any economic damage inflicted when Britain – its second biggest export market – leaves the EU.

IDA Ireland, the state agency charged with winning foreign business, began meeting banks three months before Britons voted to leave the EU. When billboards went up around London after the referendum extolling Paris as a financial center, IDA officials were already in boardrooms making their pitch for Dublin.

“These investments are won through engagement at a senior level. We weren’t trying to build relationships from scratch,” IDA chief executive Martin Shanahan told Reuters.

Dublin has bagged the planned EU headquarters of Barclays and Bank of America. JPMorgan has bought a building in the city, and is expected to move more middle and back office jobs – such as risk management and deal processing – there.

Kieran Donoghue, IDA Ireland’s head of International Financial Services speaks during an interview in London, Britain August 14, 2017.Hannah McKay

Banks, however, are holding off on moving large numbers of people yet, focusing on ensuring they have the right legal and operational framework to do business in the EU if Britain fails to negotiate a favorable exit deal, executives say. Citi for example has said the maximum number of jobs it may need to shift out of London is only around 150.

The worry for Dublin and Frankfurt is that banks could set up the EU legal entities for their trading businesses in the cities, leaving national regulators with the task of overseeing their massive balance sheets, but with the bulk of jobs staying in London or placed elsewhere in the EU.

“Most banks are looking to minimize expense and disruption by relocating as little as possible in the first instance,” said Matt Austen, UK head of financial services at Oliver Wyman.

Supervisors are on guard for setups that are little more than fronts for staff still working in London. The European Central Bank has repeatedly warned that “shell” operations will not be accepted.

MASSIVE BENEFITS

Many banks’ concerns still center on issues such as a country’s regulatory regimes, infrastructure and economy.

Bill Winters, chief executive at Standard Chartered, told Reuters his bank opted for Frankfurt as its new EU base due to Germany’s AAA credit rating. With Ireland’s rating up to six notches lower, that went against Dublin.

“It would’ve been easy to set up there also. But at the end of day it involved an interesting issue around the country’s credit rating. We felt large institutional investors would prefer Germany,” he said.

Paris also assembled a group of leading lobbyists including some of France’s most respected business executives. Teams went to meet bankers in New York.

HSBC, which has extensive French operations, has said it would move up to 1,000 traders to Paris in the case of a “hard” Brexit. French banks are also expected to transfer back some staff now based in London.

But other lenders proved reluctant to make any decision in favor of Paris before knowing the outcome of elections in May.

Former Bank of France governor Christian Noyer, who is lobbying for Paris, said attitudes have improved since Emmanuel Macron, a pro-EU ex-banker and economy minister, won the presidency. Some bankers, however, remain skeptical that his government can change labor laws and the tax system, which they say are major deterrents to setting up in France.

Rival centers are moving on to the next struggle to win over clearing houses for the likes of euro-denoninated derivatives, with Frankfurt and Paris the main contenders.

“There’s a 50 percent chance of having clearing business move to Frankfurt,” said Vaeth. The number of jobs would be relatively modest, but he added: “Success would mean 100 billion euros of assets … The long term benefits are massive.”

Reporting By Anjuli Davies and Padraic Halpin; Additional reporting by Maya Nikolaeva; editing by David Stamp

 

Published at Fri, 18 Aug 2017 06:49:29 +0000

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Day 1 of NAFTA talks: ‘This agreement has failed’

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U.S., Canada and Mexico begin NAFTA negotiations
U.S., Canada and Mexico begin NAFTA negotiations

 Day 1 of NAFTA talks: ‘This agreement has failed’

  @CNNMoney

President Trump’s trade team didn’t mince words on the first day of trade talks with Canada and Mexico.

Leaders from the U.S., Canada and Mexico on Wednesday officially began renegotiating NAFTA, the three-nation trade pact, in Washington.

Mexican and Canadian leaders started a press conference on a positive note, touting the advantages of NAFTA and saying the new agreement must work for all three nations.

Then, U.S. Trade Representative Robert Lighthizer spoke. He noted that NAFTA has benefited many Americans, such as farmers, and said the U.S., Canada and Mexico have a strong friendship.

But he soon tore into NAFTA, Trump-style.

“For countless Americans, this agreement has failed,” Lighthizer said. “We cannot ignore the huge trade deficits, the lost manufacturing jobs, the businesses that have closed or moved because of invectives, intended or not, in the current agreement.”

Lighthizer said at least 700,000 American jobs have been lost due to NAFTA. He added “many people believe the number is much, much bigger than that.”

The stakes of renegotiation are high. Millions of jobs and thousands of companies rely on NAFTA. American consumers benefit immensely from free trade while factory workers say they’ve gotten the short end of the deal, with their jobs outsourced to Mexico.

The threat facing the pact is real, too. Trump says if the U.S. can’t get a better deal, he’ll withdraw from NAFTA. He’s also threatened to slap tariffs on Mexico, and he’s already slapped some on Canada. They have in turn cautioned that they’ll retaliate against any U.S. tariffs.

Mexican and Canadian leaders framed their desires around “modernizing” NAFTA to reflect more of today’s global economy, including guidelines for e-commerce, which isn’t included in the 23-year-old deal.

“The issue is not tearing apart what works, but rather making our agreement work better,” Mexico’s economy secretary Ildefonso Guajardo said on Wednesday.

“We want to protect NAFTA’s record of job creation and economic growth,” Canada’s foreign minister Chrystia Freeland said. Freeland also delivered remarks in Spanish, which appeared to be a gesture of goodwill toward Mexico.

Negotiations will begin with what isn’t in NAFTA already — digital trade, protection of intellectual property and energy trade, among other topics.

Leaders admitted that’s the easy part. “After modernizing, the tough work begins,” Lighthizer said.

Future rounds of negotiations will take place in Mexico and Canada over coming months.

Thorny issues surround several topics, including where and how car companies manufacture vehicles. Trump’s team sees this as an area where they can reshape NAFTA to create more factory jobs.

Right now, 62% of the parts of a car sold in North America have to come from the region. U.S. officials will likely aim to raise that level, though it’s unclear how much.

But experts caution if companies have to produce more parts in the U.S., it will likely cause American consumers to pay higher prices on cars, clothing and other goods.

“It sounds difficult to achieve both things, something has to give,” says Marcelo Carvalho, head of emerging markets research at BNP Paribas.

Another challenge facing the negotiators: Time. Mexico has a presidential election next year and the front runner, Andres Manuel Lopez Obrador, is a major critic of Trump. Current Mexican officials warn that NAFTA talks need to end before Mexico’s election season starts next spring because it will be very hard to ratify a deal in that political environment.

And Lighthizer noted that Trump isn’t interested in “tweaking” NAFTA. They want a “major improvement.”

Experts say the administration will be challenged to get a truly new deal done before the spring.

“I’m skeptical that you can fundamentally rewrite the agreement in six to eight months,” says Matthew Rooney, economic growth director at the Bush Institute in Texas.

As talks get underway, one lingering question hangs over the three nations.

“If they can’t get an agreement, does President Trump get rid of it entirely?” said Lori Wallach, global trade watch director at Public Citizen, a non-profit. “It depends on the will of the parties.”

Published at Wed, 16 Aug 2017 16:18:14 +0000

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