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Is The South Korean Crypto-Drama Finally Over?

Is The South Korean Crypto-Drama Finally Over?

By: Michael Kern | Wed, Feb 21, 2018


The regulation rumor mill has been churning particularly hard in recent months, with South Korea and China taking center stages. But recent headlines are suggesting that the South Korean government, at least, may finally be coming around.

As one of the busiest markets for cryptocurrency trade, regulation rumors sent prices of cryptos across the board tumbling. But now, a key regulator, Choe Heung-sik, chief of South Korea’s Finance Supervisory Service, has reassured his citizens that an outright ban is off the table.

Not only is the much-feared ban of cryptos off the table, Choe hopes the country will normalize cryptocurrency business in a self-regulatory environment.

“The whole world is now framing the outline (for cryptocurrency) and therefore (the government) should rather work more on normalization than increasing regulation,” Choe told reporters.

This news inspires hope in many crypto-enthusiasts looking for reassurance in the marketplace. This is certainly a far cry from the Justice Minister’s January warnings of a potential shutdown of cryptocurrency exchanges in the country.

While anonymous accounts in South Korean banks are forbidden to purchase cryptocurrencies to prevent crimes such as money laundering, several banks are adopting policies allowing customers to not only buy cryptos, but even preparing plans to integrate spending options in the near future.

Choe also mentioned that the government will ‘encourage’ banks to do business with cryptocurrency exchanges, noting that Shinhan Bank, Industrial Bank of Korea, and NH Bank are already offering accounts to a number of local exchanges.

The wave of positivity coming from regulatory officials has clearly had an impact on crypto prices in the past few days, with bitcoin finally showing signs of recovery.

The government’s apparent change of heart also paves the way for corporations, such as Samsung which is launching its own brand of crypto-mining hardware, to do business with the blessing of regulators.

By Michael Kern

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

Published at Wed, 21 Feb 2018 11:14:31 +0000

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KFC is running out of chicken across the U.K.

KFC has a chicken delivery problem in the UK
KFC has a chicken delivery problem in the UK

KFC is running out of … chicken?

The fast food chain has been forced to temporarily close hundreds of restaurants in the United Kingdom after a logistics snafu stopped chicken deliveries.

About 800 of the company’s roughly 900 locations in Britain were closed as of midday on Monday. Some had opened for business by the afternoon, according to the company’s website.

KFC, which is owned by Taco Bell and Pizza Hut parent Yum!(YUM), said the chicken shortage had been caused by a “couple of teething problems” with its new delivery partner, DHL(DPW).

“We won’t compromise on quality, so no deliveries has meant some of our restaurants are closed, and others are operating a limited menu, or shortened hours,” KFC said in a statement.

DHL acknowledged that a number of its deliveries had been “incomplete or delayed” because of “operational issues.” The logistics company said it was working with KFC to solve the problem.

KFC switched suppliers from Bidvest Logistics to DHL last Wednesday. Bidvest said that from its perspective, the transition had been “seamless.”

Franchisees operate 95% of KFC’s outlets in the U.K. The company said in a statement that it would pay its staff as normal, and it was encouraging franchisees to do the same.

KFC said it is too early to say how long it would take to restore normal service.

Britain is KFC’s largest market in Europe, and one of its top five globally.

KFC fans were not happy — and many used social media to complain and express amusement over a chicken restaurant running out of its signature product.

Published at Mon, 19 Feb 2018 17:19:05 +0000

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Asian shares extend bounce to fifth day, dollar sags to three-year low

[Stock-market-ticker]

by Pexels from Pixabay

Asian shares extend bounce to fifth day, dollar sags to three-year low

TOKYO (Reuters) – Asian shares rose for a fifth straight day on Friday as investor confidence slowly returns after a sharp sell-off earlier in the month, while the dollar continued its descent, hitting a three-year low against a basket of major currencies.

U.S. debt yields rose near multi-year highs. Two-year note yields hit a 9 1/2-year high as bond prices fell on Federal Reserve officials’ signaling that recent volatility in U.S. stocks would not stop them raising interest rates in March.

European shares are expected to rise 0.3 to 0.4 percent at the opening, according to spread-betters.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.4 percent, though many Asian markets were closed on Friday for the Lunar New year.

Japan’s Nikkei rose 1.2 percent, with investors relieved to see the government appoint Bank of Japan Governor Haruhiko Kuroda for another term, suggesting the central bank will be in no rush to dial back its massive stimulus program.

Measured by the MSCI’s broadest gauge of the world’s stocks covering 47 markets, global shares have now reclaimed more than half of the 10.7 percent plunge from a record intraday high on Jan. 29 to a four-month intraday low a week ago.

Investors have been reassured by a fall in the Wall Street Vix index, the “fear gauge” that measures the one-month implied volatility of U.S. stocks.

The index dropped below 20 for the first time since its spike to 2 1/2-year high of 50.3 last week, a jump that caused massive losses among investors who bet equity markets would be stable on a combination of solid economic growth and moderate inflation.

The Vix futures fell back to more normal patterns, from the past several days of so-called backwardation, in which the front-month contract becomes the most expensive.

The return of a more usual curve suggested that the loss-cutting and position unwinding of “volatility short” strategies had run its course for now, easing investors’ nerves.

“I’ve said markets will be unstable until February, and that February will offer a good buying opportunity,” said Eiji Kinouchi, chief technical analyst at Daiwa Securities, noting that U.S investors were likely to book profits in January to take advantage of lower tax on capital gains.

The selling appears to have run its course and the fall in volatilities, both implied and actual, is likely to prompt investors to return to stocks, he said.

The U.S. dollar, on the other hand, slipped below its January low against a basket of major currencies to reach its lowest since late 2014.

The dollar index fell to as low as 88.37, and was on course to lose over 2 percent for the week, its biggest such loss in two years.

There is no strong consensus yet on what is driving the dollar’s persistent weakness, especially in light of rising yields. Some say it simply reflects a return of risk appetite and a shift to higher-yielding currencies, including many emerging market ones.

But others cite concerns that Washington might pursue a weak dollar strategy as well as talk that foreign central banks may be reallocating their reserves out of the dollar.

There are also worries President Donald Trump’s tax cuts and fiscal spending could stoke inflation and erode the value of the dollar.

“His protectionist policies could also fan inflation. Markets appear to have calmed down for now but fundamentally it is different from last year,” said Yoshinori Shigemi, global market strategist at JPMorgan Asset Management.

“You could say that right now, rather than stocks rising around the world, it is the dollar falling against almost everything,” he added.

The euro rose to $1.2556, its highest since December 2014. Having risen 2.37 percent so far this week, it could post its biggest weekly gain in nine months.

The dollar dropped to 105.545 yen, its lowest level since November 2016 and down 2.8 percent for the week, which would be the biggest in a year and a half.

The South African rand hit a three-year high of 11.6025 to the dollar on Thursday on hopes the resignation of President Jacob Zuma had paved the way for new leaders to speed up economic growth.

The dollar’s fall came even as U.S. bond yields remained near a multi-year high.

The 10-year U.S. Treasuries yield hit a four-year peak of 2.944 percent on Thursday and last stood at 2.910 percent.

Shorter-dated yields also rose as investors grew convinced that the correction in stock prices in recent weeks would not prevent the Fed from raising interest rates in March and twice more this year.

Cleveland Fed president Loretta Mester said on Tuesday the recent stock market sell-off and jump in volatility will not damage the economy’s overall strong prospects. Mester is being considered a leading candidate for the Fed’s Vice Chair.

The two-year yield rose to as high as 2.213 percent, its highest since Sept 2008, on Thursday and last stood at 2.210 percent.

Oil prices maintained this week’s gains, with U.S crude futures trading at $61.65 per barrel, up 4.1 percent so far this week.

Elsewhere, virtual currency bitcoin recovered the $10,000 mark for the first time in two weeks, gaining more than 70 percent from its near three-month low of $5,920.7, before easing back a tad to $9,925.

Reporting by Hideyuki Sano; Editing Kim Coghill & Shri Navaratnam

Published at Fri, 16 Feb 2018 06:59:52 +0000

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Asian stocks pull further off two-month lows as Wall St. bounces

Pedestrians stand in front of an electronic board showing Japan’s Nikkei average outside a brokerage in Tokyo, Japan, December 1, 2016. REUTERS/Kim Kyung-Hoon

Asian stocks pull further off two-month lows as Wall St. bounces

TOKYO (Reuters) – Asian stocks pulled further away from two-month lows on Tuesday, lifted by Wall Street’s extended rebound from last week’s steep fall, but investors remained cautious ahead of U.S. inflation data later in the week.

MSCI’s broadest index of Asia-Pacific shares outside Japan was up 1 percent after sliding to its lowest level since Dec. 11 on Friday.

Australian stocks rose 0.5 percent and South Korea’s KOSPI climbed 1 percent. Japan’s Nikkei added 1 percent.

The Shanghai Composite Index was 1.2 percent higher, buoyed by global gains and suggestions of possible Chinese government support.

An affiliate of China’s securities regulator on Monday encouraged major shareholders of domestically-listed firms to increase their holdings after last week’s global selloff mauled Chinese stocks. [.SS]

Wall Street’s three major indexes rose for the second day on Monday as investors regained some confidence after U.S. equities had their biggest weekly drop in two years. [.N]

Still, caution lingered in the broader markets following the U.S.-led tumble in riskier assets last week and ahead of U.S. inflation data on Wednesday. A stronger-than-expected reading on price pressures could trigger a fresh wave of selling.

“It is hard at this stage to tell if the U.S. markets have bottomed out, considering that bets against the dollar still remain significant,” said Kota Hirayama, senior emerging markets economist at SMBC Nikko Securities in Tokyo.

“On the other hand, attempts by investors to pull money out of the emerging markets during last week’s turmoil appeared to have been unexpectedly limited, so that is an encouraging sign.”

The dollar index against a basket of six major currencies extended modest losses suffered overnight and dipped 0.1 percent to 90.119. The index edged back from a two-week high of 90.567 scaled late last week, when it had benefited as a safe haven in the wake of the global market selloff.

The greenback was steady at 108.680 yen. The euro was flat at $1.2293.

The South African rand dipped 0.5 percent on the day to 11.97 per dollar after news that the country’s ruling party African National Congress had opted to remove President Jacob Zuma as head of state.

The rand had risen 2 percent over the past two days, helped by hopes that Zuma would step down, but it gave back some of those gains as the latest news was seen prolonging the political standoff.

The Australian dollar was steady at $0.7864 after rising about 0.6 percent overnight on the back of higher commodity prices and improvement in broader risk sentiment. [AUD/]

Copper prices also bounced further away from two-month lows as more stable global markets encouraged investors to return to commodities.

Copper on the London Metal Exchange extended an overnight rally to trade 0.8 percent higher at $6,885.50 per tonne. [MET/L]

The dollar’s pullback from two-week highs also helped commodities. A lower greenback favors non-U.S. buyers by reducing the price of dollar-denominated commodities.

Brent crude rose 0.7 percent to $62.99 per barrel.

Spot gold was a shade higher at $1.323.06 an ounce.

Reporting by Shinichi Saoshiro; Editing by Eric Meijer and Kim Coghill

Published at Tue, 13 Feb 2018 02:24:09 +0000

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The biggest losers: Global stock market edition

How high-speed trading causes market turmoil
How high-speed trading causes market turmoil

The biggest losers: Global stock market edition

Sure, the Dow and S&P 500 have been in sell-off mode lately. But the losses are way worse in places like China and Argentina.

The Dow Jones industrial average and S&P 500 plunged just over 10% after hitting all-time highs in late January. The Nasdaq dropped by 9.7% too, though the indexes are now staging a small bounce back on Friday.

Concern about rising inflation, interest rates and bond yields in the United States helped trigger the selling around the world.

“Whilst the recent declines in the U.S. have attracted the lion’s share of attention, the major benchmarks have actually [performed] relatively well compared to several other international indices in recent sessions,” said David Cheetham, chief market analyst at the U.K. brokerage, XTB.

The biggest companies in the world — in both developed and emerging markets — lost $5.2 trillion in market capitalization since recent market peaks at the end of January, according to S&P Dow Jones Indices estimates.

Here are some of the markets that did particularly poorly this week:

China

The Shanghai Composite has dropped by 14.6% since hitting a two-year high in late January. The Hang Seng in Hong Kong has lost 13% over the same period.

Niklas Hageback, founder of Hong Kong hedge fund Valkyria Kapital, said he believed the Hang Seng in particular had been “severely overextended.” It rallied by 36% in 2017 and kept surging to all-time highs in January.

“This has been the most overbought situation since the financial crisis 10 years back,” he said. “A correction was imminent, and once the U.S. market started to show weakness, the fall has been extensive, especially for mainland financials and property stocks,” he said.

The Shenzhen A-Share index — which was left out of the global stock market rally in 2017 — sold off the most. The index is down 15.4% since hitting a recent peak in late January.

“Chinese domestic markets do show some correlation to other markets in terms of sentiment during these extreme bouts of volatility, however … they still represent an attractive investment case,” said Francois Perrin, a portfolio manager at East Capital. He said now is a good time to “start bottom-fishing” and pick up certain stocks for cheap.

Argentina

Argentina’s Merval index has dropped the most of all the global indexes. It’s fallen by as much as 16% after setting an all-time high on February 1. It has since recovered a bit.

The index surged by 110% since the start of 2017 to its peak this month, so it’s no surprise that this star performer fell along with the rest of world.

Edward Glossop, an emerging market economist at Capital Economics, said the drop isn’t anything to be concerned about following a long-running rally. But he suggested the fall may have been exacerbated by concerns about recent central bank policy related to inflation.

Japan

Japan’s Nikkei index was swept up in the selling this week. It hit its highest level in late January since the early 1990s but has since dropped by 12.6%.

“In a market like this with such an abundance of liquidity, sector diversification and stock picking are almost meaningless, and sell-offs tend to be across sectors and markets,” noted Hageback.

Europe

European markets have also fallen this week, but some have fared worse than others.

Specifically, the Dax 30 in Germany has lost 11.7% since hitting an all-time high in late January. And the Stockholm 30 lost as much as 11.5% since a recent peak in early November.

Many other European indexes have dropped by roughly 9% and 10%.

Africa

The FTSE JSE All-Share index in Johannesburg, South Africa, fared poorly over the past few days, down by as much as 11% since hitting an all-time high in late January.

“Even though the epicentre of the sell-off appeared to be developments in the U.S., it is not surprising that South African equities have been hit hard too,” said Oliver Jones, an economist at Capital Economics.

“Historically, equities in emerging markets have always tumbled when the U.S. stock market has experienced a correction, even when the cause of the correction has had little or nothing to do with emerging markets. This reflects investors around the world retreating from ‘risky’ assets,” he said.

Published at Fri, 09 Feb 2018 15:53:32 +0000

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Asia hit by Wall St’s tumble, China stock indexes lose 6 percent

Share price of Japan’s Nintendo Co. (R) is displayed at a stock quotation board outside a brokerage in Tokyo, Japan July 11, 2016. REUTERS/Issei Kato

Asia hit by Wall St’s tumble, China stock indexes lose 6 percent

TOKYO (Reuters) – Asian shares sank on Friday, with Chinese equities on track for their worst day in two years, as fears of higher U.S. interest rates shredded global investor confidence.

There was limited immediate market reaction to the U.S. government staggering into another shutdown after Congress missed a Thursday midnight deadline to renew funding.

S&P mini futures retained modest gains and were last up 0.4 percent.

Spreadbetters expected Europe markets to start lower, forecasting an 0.8 percent drop for Britain’s FTSE, and declines of 0.2 percent for Germany’s DAX and France’s CAC.

On top of pressure from the drop in global shares, Chinese equities were weighed down as investors sought to stay liquid ahead of the Lunar New Year holidays and pressure was felt to meet rising margin calls. [.SS]

The Shanghai Composite Index tumbled 6.0 percent to its lowest since May 2017, and the blue chip CSI300 index dived as 6.1 percent. Both indexes were on track for their largest single-day losses since February 2016.

Frank Benzimra, head of Asia equity strategy at Societe Generale in Hong Kong, said Chinese shares slid mostly because of the U.S. correction but he had some China-specific worries.

He said he now is neutral on China equities “due to two concerns: valuations on China-consumer related industries and execution risks on deleveraging (more specifically financial deleveraging)”.

Japan’s Nikkei shed 2.9 percent, en route for a weekly loss of 8.6 percent – its biggest since February 2016.

MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 2.2 percent to a two-month low.

The index, which hit a record high on Jan. 29, was on track for its sixth straight day of losses and stood to fall 7.6 percent on the week.

“The correction phase in equities could last through February and possibly into March,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management in Tokyo.

“The rise in long-term U.S. yields will have to settle for the correction phase to end. The surge in volatility has also prompted investors to sell risk assets, in turn feeding volatility.”

U.S. markets remained the epicenter of the global sell-off, with the Dow plunging 4.1 percent and the S&P 500 sinking 3.7 percent overnight.

With Thursday’s losses, both the S&P 500 and the Dow slid into correction territory, falling more than 10 percent from record highs of Jan. 26. [.N]

Higher yields are seen hurting equities as they increase borrowing costs for companies and reduce their risk appetite. They also present a fresh alternative to investors who may reallocate some funds to bonds from equities.

The yield on the benchmark 10-year Treasury note rose as high as 2.884 percent on Thursday, just below Monday’s four-year high of 2.885 percent. It last stood at 2.8310 percent.

Treasury yields were pushed higher after the Bank of England said British interest rates probably need to rise sooner, adding to expectations of reduced central bank stimulus globally, compounded by U.S. Senate leaders agreeing to a budget deal that would increase government borrowing. [US/]

Treasury yields have been shoved up by the prospect of increased debt issuance to fund fiscal spending under U.S. President Donald Trump, inflation worries, and expectations of the Federal Reserve raising rates sooner and more frequently than was expected.

“An increase in fiscal spending ahead of the U.S. midterm elections has caused the Fed to brace for inflation accelerating and the economy overheating. This led yields higher, ultimately triggering the fall in equities,” said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities in Tokyo.

It could be up to new Fed Chair Jerome Powell to restore calm in the financial markets, he said.

In currencies, the dollar edged up 0.2 percent to 108.985 yen , after slipping 0.5 percent overnight. For the week, it was on track to lose 1.5 percent against its Japanese peer amid risk aversion in broader markets.

The Swiss franc dipped 0.2 percent to 0.9383 franc per dollar after advancing about 0.7 percent the previous day.

The euro added 0.1 percent to $1.2259 .

The dollar index against a basket of six major currencies was flat at 90.249 after touching a two-week high of 90.567 overnight.

The pound rose 0.1 percent to $1.3933 . It had reached $1.4067 overnight following the hawkish BoE comments.

U.S. crude futures were down 1.1 percent at $60.53 per barrel after hitting a seven-week trough of $60.27 on Thursday amid fears of rising global supplies after Iran announced plans to increase production and U.S. crude output hit record highs. [O/R]

Brent crude fell 0.7 percent to $64.37 per barrel.

Reporting by Shinichi Saoshiro; Additional reporting by Luoyan Liu and John Ruwitch in Shanghai; Editing by Kim Coghill and Eric Meijer

Published at Fri, 09 Feb 2018 06:15:19 +0000

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Japan’s zany tech billionaire wants to be Warren Buffett

Meet 'crazy' tech tycoon Masayoshi Son
Meet ‘crazy’ tech tycoon Masayoshi Son

Japan’s zany tech billionaire wants to be Warren Buffett

  @AlannaPetroff

Japanese billionaire Masayoshi Son has said he wants to be the Warren Buffett of tech. Now, he’s going after the legendary investor on his home turf.

SoftBank(SFTBF), the deal-happy tech company founded by “Masa” Son, is negotiating for a minority stake in European reinsurance provider Swiss Re. The talks are still in a “very early stage” and could still fall apart, Swiss Re said.

The prospect of SoftBank getting into the insurance business has added fuel to comparisons between Son and Berkshire Hathaway(BRKA) boss Buffett: Both investors make bold deals, and both look long term.

Insurance interests would be yet another similarity.

“SoftBank has often been compared to Berkshire Hathaway in terms of the exceptional acumen of each founder: if this deal went through, they would have more in common,” said analysts at CLSA.

Berkshire’s core business is insurance, and Buffett uses the cash it generates to invest in blue chip companies including Wells Fargo(WFC), Kraft Heinz(KHC), Apple(AAPL) and Coca-Cola(KO).

SoftBank is a telecoms company that owns Sprint(S). Son’s $100 billion Vision Fund, which is backed by Saudi Arabia and Apple(AAPL), has invested in companies including Slack, WeWork and Nvidia(NVDA).

The tycoon has said his goal is to raise another 100 trillion yen ($900 billion) to fund future investments.

SoftBank did not respond to a request for comment on Thursday.

Analysts said the interest in insurance made sense for SoftBank, which could benefit from a having a more diverse portfolio of investments.

Swiss Re has historically paid an annual dividend around 5%. The Zurich-based firm suffered big losses in 2017 from hurricanes Harvey, Irma and Maria, but generated profits of more than $3.5 billion in each of the previous four years.

“To some extent, [a Swiss Re investment] could be seen as a major hedge against the diverse business risk of [SoftBank’s] operations,” said analysts at CLSA.

While Buffett and Son both love a deal, the comparison is not perfect.

“Whereas investors trust Buffett’s instincts and understand his value investing approach, they fear Masa’s big bets on the future,” Chris Lane, an analyst at Sanford C. Bernstein & Co., wrote in October.

Son, who says he has a 300-year plan for SoftBank, could be looking to shake up the insurance business.

“It is … possible that SoftBank sees some room to disrupt the current structure of the insurance business through better application of technology,” saidthe CLSA analysts.

Published at Thu, 08 Feb 2018 16:41:51 +0000

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U.S trade body backs Canadian plane maker Bombardier against Boeing

FILE PHOTO: Boeing’s logo is seen during Japan Aerospace 2016 air show in Tokyo, Japan, October 12, 2016. REUTERS/Kim Kyung-Hoon

U.S trade body backs Canadian plane maker Bombardier against Boeing

MONTREAL, WASHINGTON (Reuters) – A U.S. trade commission on Friday handed an unexpected victory to Bombardier Inc (BBDb.TO) against Boeing Co , in a ruling that allows the Canadian plane-and-train maker to sell its newest jets to U.S. airlines without heavy duties, sending the company’s shares up 15 percent.

The U.S. International Trade Commission’s unanimous decision is the latest twist in U.S.-Canadian trade relations that have been complicated by disputes over tariffs on Canadian lumber and U.S. milk and U.S. President Donald Trump’s desire to renegotiate or even abandon NAFTA.

Trump, who did not weigh in on the dispute personally, took his “America First” message to the world’s elite on Friday, telling a summit that the United States would “no longer turn a blind eye” to what he described as unfair trade practices.

The ITC’s commissioners voted 4-0 that Bombardier’s prices did not harm Boeing and discarded a U.S. Commerce Department recommendation to slap a near 300-percent duty on sales of the company’s 110-to-130-seat CSeries jets for five years. It did not give an immediate reason.

Boeing’s shares closed flat.

“It’s reassuring to see that facts and evidence matter,” said Chad Bown, a senior fellow at the Peterson Institute for International Economics in Washington. “This part of the trade policy process works unimpeded despite President Trump’s protectionist rhetoric.”

The decision will also help Bombardier sell the CSeries in the United States by removing “a huge amount of uncertainty,” at a time when its Brazilian rival Embraer is bringing its new E190-E2 jet to market, a source familiar with the Canadian company’s thinking said.

The ITC had been expected to side with Chicago-based Boeing. It alleged it was forced to discount its 737 narrow-bodies to compete with Bombardier, which it said used government subsidies to dump the Cseries during the 2016 sale of 75 jets at “absurdly low” prices to Delta Air Lines.

Bombardier had called the trade case self-serving after Boeing revealed on Dec. 21 that it was discussing a “potential combination” with Embraer. Boeing denied the trade case was motivated by those talks.

BOEING TO CONSIDER ITS OPTIONS

However, the dispute may not be over.

“This can still be appealed by Boeing,” Andrew Leslie, parliamentary secretary to Foreign Minister Chrystia Freeland, told reporters in Montreal.

Boeing said it would not consider such options before seeing the ITC’s reasoning in February. It said though that it was disappointed the commission did not recognize “the harm that Boeing has suffered from the billions of dollars in illegal government subsidies that the Department of Commerce found Bombardier received and used to dump aircraft in the U.S. small single-aisle airplane market.”

Bombardier, Delta and the U.S. consumer advocacy group Travelers United all called the ITC decision a victory for consumers and airlines.

The decision may also end up helping Trump’s plan to boost U.S. jobs as the CSeries jets for U.S. airlines will be built in the United States rather than Canada.

Through a venture with European planemaker Airbus SE, which has agreed to take a majority stake in the CSeries this year, Bombardier plans to assemble CSeries jets in Alabama to be sold to U.S. carriers starting in 2019.

Airbus Chief Executive Tom Enders promised to push ahead “full throttle” with the Alabama plans. “Nothing is sweeter than a surprise, a surprise victory,” he said.

The case had sparked trade tensions between the United States and its allies Canada and the UK. Ottawa last year scrapped plans to buy 18 Super Hornet fighter jets from Boeing.

The well-paid jobs associated with the CSeries are important both to Ottawa and the British government. Bombardier employs about 4,000 workers in Northern Ireland, whose Northern Irish political party is helping keep Prime Minister Theresa May in power.

The British Prime Minister’s office said it welcomed the decision “which is good news” for the British industry, while Canada’s Innovation Minister said the IRC came to the “right decision” on Bombardier.

Former ITC chairman Dan Pearson praised the decision. “Not a single commissioner was willing to buy Boeing’s arguments,” he said. “I think ‘America First’ is a policy of the White House and the Commerce Department. But it’s not the policy of an independent agency (like the ITC).”

Reporting by David Shepardson, Lesley Wroughton and Allison Lampert; Additional reporting by Alana Wise and David Ljunggren; Editing by G Crosse, Bill Rigby and Susan Thomas

Published at Fri, 26 Jan 2018 23:16:27 +0000

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Trump in Davos: ‘Predatory behaviors’ are distorting global markets

Photo

Trump's rock star reception at Davos
Trump’s rock star reception at Davos

Trump in Davos: ‘Predatory behaviors’ are distorting global markets

  @CRrileyCNN

President Trump has issued a firm warning to rival trading nations.

“We support free trade, but it needs to be fair, and it needs to be reciprocal,” Trump said at the World Economic Forum in Davos, Switzerland.

Trump, the first sitting American president to address the conference since Bill Clinton, touted tax and regulatory changes and solicited new investment from business leaders in a speech that lasted just 15 minutes.

The address also included a pledge to “enforce our trade laws, and restore integrity to our trading system.”

“The United States will no longer turn a blind eye to unfair economic practices, including massive intellectual property theft, industrial subsidies and pervasive state-led economic planning,” said Trump.

“These and other predatory behaviors are distorting the global markets, and harming business and workers not just in the U.S. but around the globe,” he added.

The comments, delivered to the crowd of central bankers, government officials and finance titans that attend Davos, suggest that Trump will pursue an aggressive trade agenda in his second year in office.

Trump slapped new tariffs on imported residential washing machines and solar panels this week.

He has less than 90 days to decide whether to apply tariffs on imports of steel and aluminum, and has threatened to withdraw the U.S. from NAFTA if he’s unhappy with the outcome of talks about revising the pact with Canada and Mexico.

Commerce Secretary Wilbur Ross also addressed the administration’s trade agenda in Davos, saying that the “next area of challenge” will be China’s tech industry.

“Many countries are very good at the rhetoric of free trade, but actually practice extreme protectionism,” Ross told reporters on Wednesday. “That is a problem with which the president is quite determined to deal.”

China has thrown its weight behind artificial intelligence, electric cars and computer chips in recent years, pumping money in to create industry champions with global clout.

“That is a direct threat, and that is a direct threat that is being implemented by the technology transfers, by disrespect for intellectual property rights, by commercial espionage, by all kinds of bad things,” Ross said.

Published at Fri, 26 Jan 2018 15:18:00 +0000

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Asian shares retreat as commodities ease, bitcoin pummeled

 

Asian shares retreat as commodities ease, bitcoin pummeled

TOKYO (Reuters) – Asian equities stepped back from a record high on Wednesday as the region’s resource shares were knocked by falling oil and commodity prices while digital currencies tumbled on worries about tighter regulations.

European shares were expected to dip, with futures pointing to a fall of 0.3 percent in Germany’s Dax FDXc1 .GDAXI, 0.4 percent in France’s Cac FCEc1 .FCHI and 0.2 percent in Britain’s FTSE FFIc1 .FTSE.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS retreated 0.3 percent from its record high as resource shares declined after oil and other commodities succumbed to profit-taking after recent gains.

Japan’s Nikkei .N225 fell 0.4 percent from its 26-year peak reached the previous day.

Wall Street paused its rally, hit by a 1.2 percent fall in energy stocks .SPNY as well as weakness in General Electric (GE.N). The U.S. conglomerate raised the prospect of breaking itself up and announced more than $11 billion in charges from its long-term care insurance portfolio and new U.S. tax laws.

Cboe volatility index .VIX, which measures investors’ expectation on price swings in U.S. shares, rose to a one-month closing high of 11.66 from near record low levels seen earlier this month.

World shares have rallied since the start of this year on prospects of continued strong global growth and improving earnings in the U.S. and elsewhere, with many analysts expecting an extension of the bull run in equities.

“U.S. corporate earnings are beating estimates more than usual. People have been talking about ‘goldilocks economy’,” said Soichiro Monji, chief strategist at Daiwa SB Investments, adding market fundamentals remain solid. “Now they are starting to think a ‘red-hot’ economy may be a better description.”

In the currency market, the dollar was broadly weak, sticking near a three year low against a basket of currencies.

“As more countries in the world are starting to unwind their stimulus, the dollar’s yield advantage will shrink and prompt a correction in the dollar’s strength since 2014,” said Minori Uchida, chief FX analyst at Bank of Tokyo Mitsubishi-UFJ.

The Bank of Canada is seen as likely to raise its benchmark interest rate by 25 basis points to 1.25 percent later in the day, with analysts expecting three hikes this year.

The Canadian dollar traded at C$1.2452 per dollar CAD=D4, off its three-month high of C$1.2355 hit on Jan 5.

Investors also expect the European Central Bank’s eventual exit from stimulus as a major market theme for this year.

Three sources close to the ECB’s policy told Reuters that the ECB is unlikely to ditch a pledge to keep buying bonds at next week’s meeting just yet as rate setters need more time to assess the outlook for the economy and the euro.

Although the report briefly pushed down the euro on Tuesday, the currency scaled a three-year high of $1.2323 EUR= in Asian trade before easing back to $1.2242.

The ECB last week signaled a growing appetite for revising its policy message in “early” 2018, and specifically a promise to continue its 2.55 trillion euro money-printing program until inflation heads back to target

The dollar also hit a four-month low of 110.19 yen JPY= before steadying around 110.56 yen. The Chinese yuan flirted with Monday’s two-year high in both onshore CNY=CFXS and offshore CNH=D4 trade.

Gold traded at $1,340.6 per ounce XAU=, near Monday’s four-month peak of $1,344.7.

Taking a big blow, digital currencies tumbled, with bitcoin falling to a six-week low of $10,162 BTC=BTSP after reports said South Korea and China could ban trading, intensifying fears of a wider regulatory crackdown.

“Cryptocurrencies could be capped in the current quarter ahead of G20 meeting in March, where policymakers could discuss tighter regulations,” said Shuhei Fujise, chief analyst at Alt Design.

Bitcoin traded at $10,968, down 3.7 percent in Asia, after a fall of 16.3 percent on Tuesday, its biggest daily decline in four months.

Oil prices pulled back from three-year highs as traders booked profits but healthy demand underpinned prices near $70 per barrel, a level not seen since the market slump in 2014.

Prices have been driven up by oil production curbs in OPEC nations and Russia, and demand amid healthy economic growth

U.S. crude futures CLc1 traded little changed at $63.70 per barrel after hitting a December 2014 peak of $64.89 on Tuesday.

Global benchmark Brent crude futures LCOc1 fetched $69.14 a barrel, off a peak of $70.37 on Monday, which matched a high from December 2014 at the start of a three-year market decline.

Editing by Sam Holmes & Shri Navaratnam

 

Published at Wed, 17 Jan 2018 07:25:58 +0000

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How China Is Locking Up Critical Resources In The US’ Own Backyard

How China Is Locking Up Critical Resources In The US’ Own Backyard

By: Richard Mills | Fri, Jan 12, 2018


In the 1800’s the United States under President James Monroe invoked the Monroe Doctrine, which stated that any effort by European nations to control any independent state in North or South America would be viewed as “an unfriendly disposition towards the United States.”

The intent of the Monroe Doctrine was to free the newly independent colonies of Latin America from mostly Spain and Portugal, so that the States could exert its influence undisturbed.

“The Monroe Doctrine, first articulated in 1823 as a means of blocking external interference in the Western Hemisphere, was the central pillar of US policy toward Latin America until Barack Obama’s secretary of State, John Kerry, told a roomful of Latin American diplomats in 2013 that “the era of the Monroe Doctrine is over.”  The statement was part of an effort to rehabilitate the US image in a region long accustomed to seeing the United States as seeking to control it through persuasion when possible, and force when necessary.In a policy paper published last December, Craig Deare, a dean at the US National Defense University and now Mr. Trump’s top Latin America advisor on the National Security Council staff, denounced Kerry’s statement “as a clear invitation to those extra-regional actors looking for opportunities to increase their influence. He specifically mentioned China.” Is Trump resurrecting the Monroe Doctrine? Max Paul Friedman

The point of mentioning the Monroe Doctrine is to illustrate just how far the United States has moved away from it. Now, the real influencer in Latin America is China, evidenced by the billions worth of investment either through the purchase of mining and energy company stakes, or outright mine acquisitions.

The reason, of course, is to feed China’s insatiable appetite for commodities. As an example, the Chinese are both the largest producers and consumers of aluminum and iron ore, with iron ore imports exceeding the 100-million-tonne threshold for the first time in September 2017.

The enormous political, economic and cultural shift in China, from a developing agrarian society to a modern, urban one, has led to some remarkable developments, all of which are good for commodities.

China’s New Silk Road is a $900 billion initiative meant to open channels between China and its neighbors, mostly through infrastructure investments. China, long ago put a lock on much of Africa’s vast resources.

Last April President Xi Jinping announced a grand scheme to transform a backwater called Xiongan, south of Beijing, into a city triple the size of New York. Consulting firm Wood Mackenzie estimates that building the city will call for around 20 million tonnes of steel, 400,000 tonnes of aluminum, and 250,000 tonnes of copper during the first 10 years of construction.

The Made in China 2025 initiative, which aims to make China’s copper industry more efficient, is expect to grow Chinese copper demand by an additional 232,000 tonnes by 2025. This isn’t counting the need for more copper for railways, electric vehicles, car motors and power transformers.

While iron ore and copper have been the hot targets of overseas acquisitions by Chinese firms as they seek to feed an economy that up until 2015 was growing at double digits, the Chinese have also gone after gold, nickel, tin and coking coal. More recently the most desired metals are those that feed into a tectonic global shift from fossil fuels to the electrification of vehicles. This has meant a hunt for lithium, cobalt, graphite, copper and rare earths – metals that are used in electric vehicles, of which China has become the world leader.

The most interesting part of this trend is not that China is acquiring mines and mining company stakes abroad – that has been going on for at least a decade – but that the overt attempts to lock up the world’s mining and energy resources, some of which are critical to the future world economy, are happening under the nose of the United States in Latin America, in countries previously subject to the Monroe Doctrine and in one case, right in their own front yard.

Rare earth robbery

In 2016 Molycorp’s Mountain Pass Mine in California was shut down because it couldn’t compete with the low rare earth oxide prices coming out of China – which has cornered the market in REOs with about 95% of the world’s production. The timing was bad because Molycorp had just invested $1.25 billion to expand the light rare earths facility. It was forced into bankruptcy, until last summer when an investor group with ties to the Chinese government bought the mine for $20.5 million, beating out American bidders including ERP Strategic Minerals.

While this purchase likely flew under many radars (rare earths haven’t been in vogue among investors for years), it should be greeted with considerable alarm. The Coalition for a Prosperous America is calling on the US government to block the sale on national security and economic grounds. Why? Because rare earths are critical to US military technology, and Mountain Pass was the only rare earths mine in the country. Electric systems in manned and unmanned aircraft, atomic batteries that power guided missiles, and lightweight materials used to make jet engines and rocket noses, all rely on REEs. Without a domestic supply, the Americans must rely on Chinese sources of rare earths to build “made in America” military and space equipment.

Mission critical for “the big four”  

Rare earths aren’t the only minerals that the United States is woefully dependent on foreign mines. While the US has consistently maintained that a strong domestic metals industry is an essential contributor to the nation’s economic and security interests, the fact remains that since the 1990s the US has lost control of several critical mined commodities. Written about in a previous Ahead of the Herd post, chromium, cobalt, manganese and platinum group metals represent the metallurgical Achilles’ heel of the United States because of their widespread role and vulnerability to supply disruptions. Six of the world’s top 10 cobalt mines are in the DRC, hardly a stable jurisdiction for mining, where resource nationalism – the tendency of governments to grab control of their own natural resources – is a continuous threat.

Manganese is another striking example. Most of the world’s manganese comes from South Africa, Gabon and China. There are no producing manganese mines in North America. Aside from iron ore, manganese is the most essential mineral in the production of steel. If manganese imports were suddenly stopped, there would be no US steel industry – making this one of the most critical, and vulnerable, supply chains for the nation. The States gets most of its electrolytic manganese from China. EM is used as an aluminum and copper alloy, but its most important application is in lithium-ion-manganese batteries. If the US can’t access competitively priced and reliable supplies of EM, a host of high-tech new applications will be lost to foreign competitors.

While much of the rest of the world is scrambling to tie up control of strategic minerals, America has deliberately hamstrung itself. After World War II the US set up the National Defense Stockpile to acquire and store strategic minerals for national defense purposes, but in 1992, the bulk of these stored commodities were sold off. In 1985 the secretary of the US Army testified before Congress that America was more than 50 percent dependent on foreign sources for 23 of 40 critical materials essential to US security.

Trump gets it

In December Donald Trump issued a directive that aims to identify new domestic sources of strategic metals. The thrust of the directive is to reduce US dependence of foreign supplies of these materials. “The United States must not remain reliant on foreign competitors like Russia and China for the critical minerals needed to keep our economy and our country safe,” Reuters quoted President Trump saying.

While this is certainly a step in the right direction, the United States appears to be doing little to gain access, through acquisitions, joint ventures or off-take agreements, to the materials of the future that are essential in the making of smart phones, computers, military equipment and renewable energy technologies.

The Chinese, on the other hand, are way ahead in foreign mine acquisitions and off-takes. So far ahead that it is unlikely that the United States will ever be able to catch up, and break free of their current state of critical metal dependence. Below are just a few examples.

Argentine gold tie-up

Last summer Shandong Gold partnered with Barrick, the world’s biggest gold producer, to purchase a 50% stake in the Veladero gold mine on the Chile-Argentina border. The $960 million deal included Shandong, China’s top gold miner, studying the possibility of building the massive Pascua Lama gold deposit Barrick has been trying to develop on the same border. The Chinese firm could also work with Barrick to explore other mines in the El Indio gold belt of Chile.

Brazil’s vulnerability is China’s gain

Brazil, one of the best mining jurisdictions with a wealth of minerals including iron ore, gold, copper, manganese and bauxite, should be tightening control of its mineral riches as it struggles through a major recession fueled by a corruption scandal. Instead the country has opened its doors to foreign investment: namely, Chinese.

According to Dealogic Chinese M&A of Brazilian companies totalled $10.8 billion in 2017 and $11.9 billion in 2016. Chinese banks and investment groups have committed $15 billion of a $20-billion China-Brazil Fund, a Beijing-managed fund to finance infrastructure projects that was launched in 2016. The fund is to speed resource development, including rail projects. There’s also the $10 billion “dollars for oil” loan between China Development Bank and Petrobas, the Brazilian state oil company. In return for paying off Petrobas’ debts, China gets oil supply commitments for Chinese buyers.

Next door in Venezuela, despite the basketcase of an economy run under President Nicolas Maduro, China is also investing heavily, hoping to cash in on the country’s natural resources that were plundered by the late dictator Hugo Chavez. In July the government signed agreements totaling just over $1 billion to expand mining in the country gripped by low oil prices and hyperinflation. Venezuelan state-owned CARBOZULIA will partner with Chinese state mining giant Yuankuang Group, as well as a Colombian engineering firm, to renovate mining and port infrastructure in Zulia state to the tune of $400 million. A second $180 million deal has the Venezuelan government working with Yuankuang and China CAMC to jumpstart nickel mining. In a third agreement, Defense Ministry-owned CAMIMPEG signed a $580 million deal backed by joint Chinese and Venezuelan investment to provide services in the areas of mining and gas production, reports Venezuelanalysis.com.

The great lithium grab

Speculation of a lithium shortage, led by Tesla which is helping to drive demand for EVs, almost tripled the price of lithium carbonate to over $20,000 a ton in 10 months. The burgeoning energy storage market for intermittent wind and solar power is also poised to become a major demand driver for lithium.

It is no surprise then that China, where the market for EVs is booming, wants to lock up lithium supply contracts before the price shoots up any further, and to meet the government’s ambitious plans to expand EV production.

Last July, among the bidders interested in Potash Corp’s 32% position in Chilean major lithium producer SQM, was Chinese private equity firm GSR Capital. A few months later Sinochem, China’s state chemical firm, joined the race for the $4-billion stake. In August GSR bought Nissan’s electric vehicle battery business and last fall Chinese carmaker Great Wall Motor signed an agreement with Pilbara Minerals, the Australian lithium miner, to secure supplies for the next five years, the Financial Times reported.

China Molybdenum bought the Tenke copper and cobalt mine in the Democratic Republic of Congo last year for $2.65 billion in an effort to secure a supply of cobalt for EV batteries. In November Chinese battery maker Contemporary Amperex Technology Co Ltd (CATL) said it is “looking into upstream investments in raw materials, mostly cobalt” to ensure stable supply as demand for electric vehicles (EVs) soars, according to Reuters.

The Chinese are also investing in early-stage lithium plays. In December Bacanora Minerals, which has a lithium project in Mexico, announced that NextView Capital, a Chinese institutional fund manager, has acquired a 19.89% equity interest, in exchange for a lithium battery offtake agreement.

While most North American EV enthusiasts are focused on Tesla and its Nevada gigafactory, experts see the real growth happening in China. According to a report by Bloomberg Intelligence, Chinese gigafactories will pump out 120 gigawatt hours annually worth of electric batteries by 2021, compared to Tesla’s 35.

That’s enough to supply batteries for around 1.5 million Tesla Model S vehicles or 13.7 million Toyota Prius Plug-in Hybrids per year according to Bloomberg New Energy Finance.

Warming up to South American copper

Electric vehicles use a lot of copper, and China hasn’t been shy about orchestrating a major increase in copper imports to meet the expected demand. Geologist and newsletter writer Dave Forest noticed that Chinese imports of copper concentrate from both world-leading copper nation Chile and less prolific red metal producer Peru, have both increased in the past couple of years.

He notes that together, Chile and Peru accounted for 55% of China’s total copper concentrate imports of 17.05 million tonnes in 2016. The next-biggest supplier, Mongolia, only shipped 1.50 million tonnes.

Two large Peruvian copper mines are owned by Chinese companies. Chinese state-run Chinalco owns the Toromocho copper mine, while the La Bambas mine is a joint venture between operator MMG (62.5%), a subsidiary of Guoxin International Investment Co. Ltd (22.5%) and CITIC Metal Co. Ltd (15.0%). The Chinese-backed Mirador mine in Ecuador is slated to open in 2018.

Most of the metal produced under these off-take agreements will NEVER come to the market anyplace other then in China. Those metals that do can have their China to U.S. supply shut down any time the Chinese want.

Rise of the petro-yuan

There is one more important development set to increase China’s global commodities dominance, and that is the recent announcement that China is shaking up the oil futures market. Because most commodities are traded in USD, the greenback has a huge advantage over other currencies.

China has long wanted to reduce the dominance of the USD in commodities markets, and its strategy is to launch a crude oil futures contract priced in yuan and convertible into gold. Crude oil futures, either Brent or WTI, are currently priced in USD.

The yuan-denominated oil futures will allow exporters like Russia and Iran to avoid US economic sanctions and circumvent the US dollar. Zerohedge quotes Adam Levinson, CEO at Graticule Management Asia, warning Washington that besides allowing Chinese companies to hedge oil prices, the futures contract will also increase the use of the yuan, “and thus the acceleration of de-dollarization and the rise of the petro-yuan. “I don’t think there’s any doubt we’re going to see use of the renminbi in reserves go up substantially,” says Levinson.

Conclusion

It’s hard to escape the conclusion that China, both through its enormous purchasing power, and its financial muscle that allows it to make substantial investments in mining and energy resources overseas, is assuming a position of world dominance in the commodities markets. Credit must be given to Chinese leadership for forward-thinking in developing its EV industry and for making strategic acquisitions of commodities like copper, manganese, vanadium, lithium and other battery metals that will provide a steady feedstock for the new electrified economy. But scorn must also be heaped on the United States and other countries that have failed to prepare. In the US, public infrastructure is crumbling, the automobile is still king in most states, few cities have decent transit, and many still consider global warming to be a hoax. The situation isn’t much better in Canada.

North American politicians really need to get with the program; to invest in and facilitate the mining of critical metals in North America; to scour the globe for mines that can provide the feedstock for the industries of the future, and invest in them; and to block the sale of strategic mineral assets like Mountain Pass to foreign buyers. If none of this is done, we are quickly heading into a two-tier world of haves and have-nots. Where the haves are countries like China that seized the opportunity to acquire the world’s finite resources while they were still available, and the have-nots are forced to cow to the victors who will control and set the prices of the spoils.

China’s global resource grab, and the ramifications for the rest of the world, are on my radar screen.

Are they on yours?

If not, maybe they should be.

By Richard Mills


Richard Mills

Richard (Rick) Mills
www.aheadoftheherd.com

Richard Mills

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Published at Fri, 12 Jan 2018 15:22:35 +0000

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Asia stocks near historic highs, U.S. earnings loom

 

Asia stocks near historic highs, U.S. earnings loom

SYDNEY (Reuters) – Asian shares neared all-time peaks on Monday after Wall Street boasted its best start to a year in over a decade, with brisk economic growth and benign inflation proving a potent cocktail for risk appetite.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS added 0.1 percent having climbed 3.1 percent last week, its strongest performance in six months.

At 587.99 the index is within spitting distance of the record top of 591.50 hit in November 2007.

Australian stocks gained 0.3 percent to notch another decade summit, while South Korea .KS11 rose 0.1 percent. Japan’s Nikkei .N225 was closed for a holiday but touched its highest since 1992 last week.

“It was the global synchronized growth that drove earnings and equity markets higher last year and the global economy has entered 2018 firing on all cylinders,” said analysts at Bank of America Merrill Lynch, predicting the global economy could expand at 4 percent or more this year.

“This growth is keeping our quant models bullish and driving earnings revisions to new highs,” they added. “We stay long outside the U.S., with Asia ex-Japan and Nikkei our growth plays, Europe still for yield.”

Friday’s U.S. jobs report did nothing to challenge that outlook.

While payrolls missed forecasts, the report was perfect for equities given unemployment stayed low but with little sign of the inflationary pressures that would make the Federal Reserve more aggressive in tightening policy.

Wall Street has already enjoyed its best start to a year in more than a decade, with the Dow .DJI up 2.3 percent last week and the S&P 500 .SPX 2.6 percent. The tech-heavy Nasdaq .IXIC led the charge with a rise of 3.4 percent.

The quarterly U.S. earnings season kicks off this week with the Street expecting solid growth of around 10 percent, though many companies are also likely to be announcing one-off charges to account for recent tax changes.

INVESTORS STUFFED WITH EUROS

FILE PHOTO: Men exchange greetings in front of an electronic board displaying the Nikkei average outside a brokerage in Tokyo, Japan January 4, 2018. REUTERS/Kim Kyung-Hoon

The next major data hurdles will be U.S. consumer prices and retail sales on Friday. In Asia, China reports inflation on Wednesday and international trade numbers on Friday.

In currency markets, the dollar had steadied for the moment after a rocky couple of weeks.

With economic activity picking up globally, the dollar .DXY has been undermined by expectations the Fed will not be the only central bank tightening policy this year.

On Friday, surprisingly strong Canadian jobs data stoked speculation interest rates there could rise as early as next week and sent the local currency to a three-month peak CAD=.

Upbeat euro zone data has likewise underpinned the single currency at $1.2036 EUR=, though it has so far failed to clear major chart resistance at the September top of $1.2092.

The dollar has fared better on the yen at 113.15 JPY=, thanks in part to expectations the Bank of Japan will stick with its super-easy policies.

Japanese Prime Minister Shinzo Abe on Sunday called on central bank governor Haruhiko Kuroda to keep up efforts to reflate the economy, but added he was undecided on whether to reappoint Kuroda for another five-year term.

The combination of a soft U.S., dollar and strong global growth has been positive for commodities, with everything from coal to iron ore to copper in demand.

Spot gold XAU= made a 3-1/2-month high last week and was trading at $1,320.51 an ounce on Monday.

Oil prices reached their highest since 2015 helped in part by political tensions in Iran, the third-largest producer in the Organization of the Petroleum Exporting Countries (OPEC).

Brent LCOcv1 was last up 15 cents at $67.77, while U.S. crude CLcv1 rose 20 cents to $61.64 per barrel.

Editing by Sam Holmes

Published at Mon, 08 Jan 2018 00:25:01 +0000

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This was the year Brexit began to bite

This was the year Brexit began to bite

Britain voted to leave the European Union in 2016, and its exit won’t be official until 2019.

But this was the year that Brexit began to bite.

The price of consumer goods spiked in 2017, business confidence slumped, growth slowed dramatically and the property market stalled.

Kallum Pickering, senior U.K. economist at Berenberg Bank, said the country’s economy “should be riding high on the back of the ongoing global upswing.”

“Instead … the U.K. has missed out on the fun, with its growth rate slowing,” he said.

The malaise crept in slowly, but has its roots in a sudden event: The EU referendum vote in June 2016, which caused the value of the pound to drop sharply.

“Consumers originally kept on spending after the Brexit vote, because at first, nothing really changed,” said Howard Archer, an economic adviser to EY.

But the currency’s plunge soon translated into higher prices on imported goods. Inflation, which began the year at 1.8%, had shot up to 3.1% by November.

“Inflation really started to move up late last year and there has been consistent pressure on consumer spending this year,” Archer said.

Wages, meanwhile, grew only 2.2% on average in 2017. The squeeze has made consumers poorer in real terms, with less cash to splash out on purchases.

Retailers are now feeling the pain.

Spending in brick-and-mortar stores dropped 3.5% from the previous year in November. Visa expects spending to decline this holiday season for the first time since 2012.

Automakers have also had a terrible year: The number of cars manufactured in Britain fell 4.6% over the previous year in November, according to the Society of Motor Manufacturers and Traders.

Sales of new cars, which have also been affected by confusion over diesel regulations, declined 11.2% in November.

“An eighth month of decline in the new car market is a major concern, with falling business and consumer confidence exacerbated by ongoing anti-diesel messages from government,” the industry group said.

The unemployment rate remains very low, but even the labor market is showing signs of wear and tear. Some 65,000 retail jobs have been lost since the Brexit referendum, for example.

brexit wage growth

The chances of a quick turnaround appear slim.

The Office of Budget Responsibility has slashed its growth forecast for 2018 to just 1.4%.

The Resolution Foundation says that average earnings, adjusted for inflation, are likely to stay below the level they hit before the global financial crisis until the start of 2025.

Meanwhile, negotiations between Britain and the EU have now moved on to their second phase, which will include their future terms of trade.

They will also attempt to negotiate a transition of roughly two years that would give British businesses extra time to adapt to life outside the bloc.

Industry groups say they need clarity as soon as possible. But talks could still fall apart.

“The key risk remains that the U.K. will opt for a hard Brexit with few follow-up arrangements for privileged access to the EU market,” Pickering said.

Published at Mon, 25 Dec 2017 08:34:47 +0000

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Uber dealt blow after EU court classifies it as transport service

 

Uber dealt blow after EU court classifies it as transport service

LUXEMBOURG (Reuters) – Uber [UBER.UL] should be classified as a transport service and regulated like other taxi operators, the European Union’s top court said in a landmark ruling on Wednesday that could impact other online businesses in Europe.

Uber, which allows passengers to summon a ride through an app on their smartphones, has transformed the taxi industry since its launch in 2011 and now operates in more than 600 cities globally.

In the latest of a series of legal battles, Uber had argued it was simply a digital app that acted as an intermediary between drivers and customers looking for a ride and so should fall under lighter EU rules for online services.

“The service provided by Uber connecting individuals with non-professional drivers is covered by services in the field of transport,” the European Court of Justice (ECJ) said.

“Member states can, therefore, regulate the conditions for providing that service,” it said.

The case follows a complaint from a professional taxi drivers’ association in Barcelona that Uber’s activities in Spain amounted to misleading practices and unfair competition from Uber’s use of non-professional drivers – a service Uber calls UberPOP and which has since been suspended in Spain and other countries.

GIG ECONOMY

Uber has taken the fight to regulators and established taxi and cab companies, expanding from a Silicon Valley start-up to a business with a valuation of $68 billion.

Following changes at the top and legal battles, it recently adopted a more conciliatory approach under its new chief executive Dara Khosrowshahi.

The European case had been widely watched as an indicator of how the burgeoning gig economy, which also features the likes of food-delivery company Deliveroo, would be regulated in Europe.

The ECJ said Uber “exercises decisive influence over the conditions under which the drivers provide their service” and that without the Uber mobile app “persons who wish to make an urban journey would not use the services provided by those drivers.”

The decision is unlikely to have an immediate impact on Uber’s operations in Europe, where it has cut back its use of unlicensed services such as UberPOP and adheres to local transportation laws.

“This ruling will not change things in most EU countries where we already operate under transportation law,” an Uber spokeswoman said in a statement.

“As our new CEO has said, it is appropriate to regulate services such as Uber and so we will continue the dialogue with cities across Europe. This is the approach we’ll take to ensure everyone can get a reliable ride at the tap of a button.”

Uber is in the middle of a legal battle over its right to operate in London, its most important European market.

Bernardine Adkins, Head of EU, Trade and Competition Law at Gowling WLG said the ruling provided “vital clarity to its (Uber‘s) position within the marketplace.”

“Uber’s control over its drivers, its ability to set prices and the fact its electronic service is inseparable from its ultimate consumer experience means it is more than simply a platform connecting drivers to passengers.”

TAXI LOBBY CHEERS

IRU, the world road transport organization, which includes taxi associations, cheered the ruling as finally offering a level playing field for providers of the same service.

“In the area of mobility, the taxi and for-hire sector was one of the first to embrace innovation and new technologies,” said Oleg Kamberski, Head of Passenger Transport at IRU.

“Finding a solution that allows both traditional and new transport service providers to compete in a fair way while meeting the service quality standards became necessary.”

EU law protects online services from undue restrictions and national governments must notify the European Commission of any measures regulating them so it can ensure they are not discriminatory or disproportionate.

Transport, however, is excluded from this.

The tech industry said the ruling would impact the next generation of start-ups more than Uber itself.

“We regret the judgment effectively threatens the application of harmonized EU rules to online intermediaries,” said Jakob Kucharczyk, Vice President, Competition & EU Regulatory Policy at the Computer & Communications Industry Association.

“The purpose of those rules is to make sure online innovators can achieve greater scalability and competitiveness in the EU, unfettered from undue national restrictions,” he added.

“This is a blow to the EU’s ambition of building an integrated digital single market.”

Reporting by Julia Fioretti; editing by Keith Weir and David Evans

Published at Wed, 20 Dec 2017 11:53:37 +0000

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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

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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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