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IMF chief: Clouds over global economy are ‘getting darker by the day’

This is what a trade war looks like
This is what a trade war looks like

IMF chief: Clouds over global economy are ‘getting darker by the day’

Escalating trade tensions are posing an increasing threat to the global economy, the head of the International Monetary Fund has warned.

“The clouds on the horizon … are getting darker by the day,” IMF Managing Director Christine Lagarde said at a news conference in Berlin on Monday.

“The biggest and darkest cloud that we see is the deterioration in confidence that is prompted by [the] attempt to challenge the way in which trade has been conducted, in which relationships have been handled and the way in which multilateral organizations have been operating” she said.

Her comments follow the acrimonious end to the G7 summit in Quebec this weekend in which President Donald Trump attacked Canadian Prime Minister Justin Trudeau over trade.

Tensions were already rising between the United States and key allies ahead of the G7 summit after the Trump administration slapped steel and aluminum tariffs on Canada, Mexico and the European Union in the name of national security.

All three trading partners have announced retaliatory measures.

The United States is also locked in a tense trade dispute with China, the world’s second largest economy.

The Trump administration is expected to announce by the end of this week a list of Chinese goods worth around $50 billion on which it will impose steep new tariffs in response to alleged Chinese theft of American intellectual property. The tariffs will go into effect shortly afterward, it said.

The move has thrown into doubt the outcome of trade talks with China, which previously threatened to retaliate with tariffs on a similar amount of US goods, including cars, planes and soybeans.

Speaking alongside Lagarde at the news conference Monday, World Trade Organization Director-General Roberto Azevêdo said the rising tensions in global trade “risk a major economic impact, undermining the strongest sustainable period of trade growth since the financial crisis.”

Published at Tue, 12 Jun 2018 04:15:38 +0000

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Why European banks are flirting with each other again

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By Tama66 from Pixabay

Why European banks are flirting with each other again

Will some of Europe’s biggest banks soon be walking down the aisle?

There have long been rumblings that weak profits and rising costs could spark a wave of bank mergers in Europe, but deals have remained elusive.

Now speculation has been reignited by media reports suggesting that Deutsche Bank (DB) could pair off with German rival Commerzbank (CRZBF), while Barclays (BCS) could join forces in Britain with Standard Chartered (SCBFF).

In a rare cross-border scenario, France’s Société Générale (SCGLF) would merge with Italy’s UniCredit (UNCFF).

There is no suggestion that any of the banks are close to pulling the trigger on a takeover. Still, the rationale for regional consolidation is compelling and the forces pushing banks together are unlikely to weaken.

The main problem is that Europe has too many banks.

Across the 19 countries that use the euro currency, there are 54,000 citizens per bank branch, according to the European Banking Federation.

That’s roughly the same ratio as in the United States, but the banking sector is much leaner in the United Kingdom, where there are 170,000 people per bank, and in Japan, where the number of citizens per bank rises to nearly 900,000.

“You do have a very divided market across the continent of Europe,” Barclays CEO Jes Staley said this week during an interview on CNBC. “It’s true that scale … is an asset.”

Then there’s the issue of profitability. While American banks are churning out record earnings, their counterparts in Europe have struggled in the wake of the global financial crisis.

Deutsche Bank, which has been losing money for years, had its credit rating downgraded by S&P earlier this month. The lender’s new CEO recently announced that he would slash more than 7,000 jobs, focus investment banking on European clients, and do more to control costs.

Barclays has had its financial position degraded by billions in payments made for allegedly deceiving investors about the quality of mortgage deals that fueled the 2008 financial crisis.

According to the European Banking Federation, banks in the eurozone are much worse at using their assets to make a profit, generating returns of only 1.8%, compared to 8.8% in the United States and 7.3% in Japan.

ZEB, a financial services consultancy, said earlier this year that it expects “widespread industry consolidation” between now and 2021, especially in the most fragmented markets such as Germany and Austria.

“A number of efficient large banks will become expert at ‘hoovering up’ smaller and less efficient banks,” ZEB predicted.

Published at Fri, 08 Jun 2018 20:13:03 +0000

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Swiss vote down ‘dangerous’ overhaul of banks

ubs credit suisse

Swiss vote down ‘dangerous’ overhaul of banks

Swiss voters have overwhelmingly rejected a proposed overhaul of the country’s banking system that had been described as “dangerous” by its critics.

Over 75% of voters rejected the “sovereign money” proposal in a referendum on Sunday, according to provisional results published by the government.

The initiative would have prohibited commercial banks from lending more money than they had in deposits, leaving the country’s central bank the only source of new money.

It would have meant a sharp deviation from standard banking systems, under which banks “create” money by issuing new loans.

Supporters had argued that the proposal would have enhanced the integrity of Swiss financial markets, and protected the tiny nation from boom and bust cycles. Opponents warned of dire economic consequences.

The initiative was conceived as a response to the global financial crisis a decade ago, which had its roots in irresponsible lending by commercial banks.

A small group of economists and other supporters had pushed for the vote on “sovereign money,” gathering the 100,000 signatures required for the proposal to land on the nationwide ballot.

According to the Swiss National Bank, the introduction of “sovereign money” would not have eased credit and asset bubbles because banks could still underestimate risk, leaving them exposed to future crises.

Thomas Jordan, the central bank’s chairman, had warned that the “sovereign money” initiative was “an unnecessary and dangerous experiment, which would inflict great damage on our economy.”

The country’s commercial banks had also warned of dramatic consequences.

“I won’t get into details, as the large banks in this country are being used as the rationale for the initiative, but I don’t expect the Swiss people to be suicidal and approve it,” UBS (UBS) CEO Sergio Ermotti said recently.

S&P Global Ratings had said that a yes vote would have affected “the creditworthiness of Swiss banks.”

It’s not the first time that a radical referendum has been put to Swiss voters. Two years ago, the country voted down a proposal that called for a generous universal income.

Published at Sun, 10 Jun 2018 14:37:10 +0000

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G7 leaders set to clash with Trump

by Julius_Silver from Pixabay

G7 leaders set to clash with combative Trump over tariffs, trade

QUEBEC CITY (Reuters) – Leaders of the Group of Seven rich nations are set to clash with a combative U.S. President Donald Trump on Friday when they pressure him to lift sanctions on steel and aluminum they fear could lead to a trade war.

The confrontation threatens to rupture a body that during its 43-year history has traditionally sought to find consensus on the economy and other issues.

Trump, who aides say has little interest in multilateralism, twice attacked Canadian Prime Minister Justin Trudeau on Twitter on Thursday and officials concede the mood is likely to be exceptionally tense.

“There will be some serious disagreements on a lot of things,” a Canadian official told reporters late on Thursday.

Although Trump says the tariffs are necessary to protect U.S. industry, Canada and the European Union have denounced them as illegal and are preparing retaliatory measures.

French President Emmanuel Macron said on Thursday leaders needed to be civil at the summit but he is clearly losing patience with the U.S. President, suggesting the other six members of the G7 could form their own grouping if necessary.

U.S. President Donald Trump holds a joint news conference with Japan’s Prime Minister Shinzo Abe in the Rose Garden of the White House in Washington, U.S., June 7, 2018. REUTERS/Kevin Lamarque?

British Prime Minister Theresa May took a more measured tone, telling reporters she wanted the European Union to use restraint in its retaliation to the U.S. tariffs and that the response must be proportionate and legal.

Trump showed no sign of backing down on Thursday, first taking to Twitter to accuse both France and Canada of imposing massive tariffs on U.S. goods and then accusing Trudeau of “being so indignant.”

In response, the Canadian official replied that “the prime minister and the president have very frank, direct, candid, honest conversations.” Trudeau and Trump are due to meet on Friday “and they will have lots to talk about,” the official added.

The White House subsequently announced the president would be leaving on Saturday, before the summit formally ends, to fly to Singapore for a meeting with North Korean leader Kim Jong Un.

While the G7 leaders have largely praised Trump for his efforts to stabilize the Korean peninsula, they are unhappy he pulled out of an agreement designed to limit Iran’s nuclear ambitions.

The arguments threaten to derail a meeting that Trudeau had planned to focus on inclusive growth, gender equality and protecting oceans.

The Canadian official said Trudeau remained optimistic that the summit could help find common solutions to issues such as growth and environmental protection.

Writing by David Ljunggren; Editing by Paul Tait

Published at Fri, 08 Jun 2018 02:57:51 +0000

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US trade deficit falls to 7-month low

US trade deficit falls to 7-month low

By Lucia Mutikani

WASHINGTON (Reuters) – The U.S. trade deficit fell to a seven-month low in April as exports rose to a record high, lifted by an increase in shipments of industrial materials and soybeans.

The Commerce Department said on Wednesday the trade gap dropped 2.1 percent to $46.2 billion, the smallest since September. Data for March was revised to show the trade deficit falling to $47.2 billion, instead of the previously reported $49.0 billion.

The government also revised trade data going back to 2010. Economists polled by Reuters had forecast the trade deficit unchanged at $49 billion in April.

When adjusted for inflation, the trade gap narrowed to $77.5 billion from $78.2 billion in March. The so-called real trade deficit is below its $82.5 billion average in the first quarter.

If the trend in the real trade deficit is maintained, trade could contribute to gross domestic product in the second quarter after having a neutral impact in the January-March period.

Strong data ranging from manufacturing to consumer spending and the labor market have led the Federal Reserve Bank of Atlanta to estimate that economic growth in the second quarter will top a 4.0 percent annualized rate. The economy grew at a 2.2 percent pace in the first quarter.

But a protectionist trade policy being pursued by President Donald Trump poses a threat to the otherwise rosy economic outlook. Trump in March announced tariffs for steel and aluminum imports to protect domestic industries from what he says is unfair competition from foreign producers.

Last week, Trump extended the duties to steel and aluminum imports from Canada, Mexico and the European Union. Mexico has retaliated with measures targeting a wide range of U.S. farm and industrial products. Canada has said it would slap tariffs on imports from the United States, including whiskey, orange juice, steel, aluminum and other products.

A trade war is also looming with China. Washington and Beijing have threatened tit-for-tat tariffs on goods worth up to $150 billion each. Trump claims the United States is being taken advantage of by its trading partners, but economists warn that tariffs will hobble the economy, raising prices and destroying jobs for Americans.

Economists say that tariffs will do little to shrink the trade deficit, partly because of the dollar’s status as the global reserve currency and the low U.S. savings rate, including a fiscal deficit that has been blown up by a $1.5 trillion tax cut package.

The politically sensitive goods trade deficit with China increased 8.1 percent to $28.0 billion in April. The deficit with Mexico narrowed 29.8 percent to $5.7 billion in April. The United States had a $0.8 billion goods trade deficit with Canada in April.

In April, exports of goods and services rose 0.3 percent to a record $211.2 billion. Exports were supported by a $1.3 billion increase in deliveries of industrial supplies and materials such as fuel oil and petroleum products.

Exports of industrial supplies and materials were the highest on record in April. Soybean exports increased $0.3 billion and corn shipments also rose by a similar amount. But exports of commercial aircraft tumbled $2.8 billion.

Exports to China dropped 17.1 percent in April.

Imports of goods and services slipped 0.2 percent to $257.4 billion in April. Imports of consumer goods dropped $2.8 billion, weighed by a $2.2 billion decline in imports of cellphones and other household goods. Motor vehicle imports fell $1.0 billion.

Crude oil imports rose $1.0 billion in April. Imports from China were unchanged in April.

(Reporting By Lucia Mutikani; Editing by Andrea Ricci)

Published at Wed, 06 Jun 2018 12:46:08 +0000

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What the tariffs mean for you, and why men still control the household finances

Trump hits Canada, Mexico, EU with steep tariffs
Trump hits Canada, Mexico, EU with steep tariffs

What the tariffs mean for you, and why men still control the household finances

It was all about tariffs and jobs last week. And the news could have major implications for your budget.

The job market is still firing on all cylinders, which is great news for current employees and job seekers.

The Trump administration announced steep tariffs on steel and aluminum from three of America’s biggest trading partners. That means you could see higher prices on everyday products.

And when it comes to controlling household finances, why does it feel like we’re still stuck in the 1950s?

UNEMPLOYMENT RATE: HOW LOW CAN IT GO?

jobs now hiring inquire within

We got another great jobs report on Friday. The jobless rate dropped to 3.8% in May, tied for the lowest unemployment rate since 1969. Employers added 223,000 jobs in the month.

The low rate and robust job growth is more evidence of a strong economy and tight labor market.

The president seemed particularly excited about the report — even before its release.

The gap between black and white unemployment is also shrinking. The black unemployment rate fell to 5.9% in May, the lowest since the government started keeping track in 1972.

It’s a great time to be a job seeker as companies beef up recruitment and retention tactics to attract talent.

Walmart announced last week that its employees will pay just $1 a day to earn a degree.

And calling all remote workers: Vermont wants you.

The state has a new law that will pay workers to move there and work remotely. Eligible workers can get up to $5,000 a year, topping out at $10,000 over two years. Read more about it here.

Keep in mind that if you live in one state and work for a company in a different state, you could get hit with a bigger tax bill.

TRADE WAR: SHOTS FIRED

The Trump administration is imposing steep tariffs on steel and aluminum from three of America’s biggest trading partners: Canada, Mexico and the European Union.

Back in March, the president announced worldwide steel and aluminum tariffs, but granted exemptions to some major trading partners, including Canada, Mexico and the EU. Apparently not anymore.

The addition of the three didn’t go over well. Here’s how Europe is fighting back.

The tariffs could lead to higher prices on a range of products.

They could also place the United States in a trade dispute on more than one front. The administration is separately moving ahead with tariffs on Chinese goods.

Wall Street barely reacted to the news, but tariffs could undercut any benefits from the new tax law.

WHO WANTS TO BE A MILLIONAIRE (YOU DO!)

salary quit

Saving $1 million dollars for retirement seems like a pipe dream to a lot of us.

But a handful of people are actually doing it.

Around 157,000 people have saved over a million dollars in their 401(k) and another 148,000 had socked away that much in an IRA.

Want to know their secret? Time.

Most of them are Baby Boomers who have saved for at least 30 years.

If you’re counting on Social Security to help pad your retirement nest egg, better read about these three costly mistakes to avoid.

Another big boost to your retirement income is getting rid of all your credit card debt. Not sure where to start? Check out these tips from CNN’s Julia Carpenter.

WOMEN STILL GIVE UP FINANCIAL CONTROL

women financial planning spouses UBS report

Women are more educated, accomplished and empowered than ever before.

But they still aren’t taking control of their money and investments.

A new report from UBS found that 56% of married women leave investment and long-term financial planning decisions to their husbands, and 85% of women who defer to their husbands believe their spouses know more about financial matters.

Published at Mon, 04 Jun 2018 20:40:29 +0000

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Asia stocks claw back earlier losses but trade tensions limit gains

Asia stocks claw back earlier losses but trade tensions limit gains

TOKYO (Reuters) – Asian equities shook off earlier weakness on Friday, as a softer yen supported Japanese stocks and firm export data drove South Korean markets higher, although rekindled concerns about U.S. protectionist trade policies limited gains.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS gained 0.1 percent but the index was still down roughly 0.6 percent for a week in which it touched a six-week low on concerns about political developments in Italy.

Wall Street shares posted deep losses overnight after the United States said it would impose tariffs on aluminum and steel imports from Canada, Mexico and the European Union.

Fears of a global trade conflict, which had partially receded over the past few weeks, were reignited as Washington’s allies took steps to retaliate against the U.S. measures.

However, regional sentiment recovered somewhat with South Korea’s KOSPI .KS11 up 0.7 percent on upbeat export data while Japan’s Nikkei .N225 advanced 0.3 percent, buoyed by the yen’s weakening against the dollar.

More broadly, Soichiro Monji, senior economist at Daiwa SB Investments in Tokyo, expected equity markets to be weighed down “as the United States has opened up a new point of contention on the trade front by getting involved with the European Union.”

“President (Donald) Trump has not accomplished very much in terms of trade issues and is likely to remain vocal with the U.S. midterm elections coming up,” he said.

In China, stocks were volatile, with the long-awaited inclusion of big cap shares from the country in MSCI’s emerging markets index failing to buoy the market or attract any immediate flows of foreign money. [.SS]

The Shanghai Composite Index .SSEC fell 0.3 percent and the blue-chip CSI300 index .CSI300 dropped 0.55 percent.

On Friday, about 230 yuan-denominated mainland A-shares were included in MSCI’s emerging markets index for the first time in a step toward deeper integration of China’s bourses with the rest of the world.

Bank of America Merrill Lynch estimates that at full inclusion, China’s A-shares could account for some 30 percent of MSCI’s emerging market index.

“It took Korea and Taiwan some six to nine years to gain full weighting. It may take (China’s) A-shares longer in our view due to size, access and capital mobility constraints,” wrote equity strategists at Bank of America Merrill Lynch.

In currencies, the Canadian dollar CAD=D4 and the Mexican peso MXN=D2 were on the defensive, weighed by the U.S. decision to impose tariffs on aluminum and steel imports from these countries.

The euro was little changed at $1.1696 EUR= holding to modest gains made on relief overnight as Italy’s anti-establishment parties reached a deal to resurrect their proposed coalition government.

The deal by the Italian parties averted the prospect of a new snap election, which had rattled global markets earlier this week and sent the euro to a 10-month low of $1.1510 on Tuesday.

The dollar climbed 0.4 percent to 109.240 yen JPY=. It has lost about 0.1 percent against the yen this week as the earlier global market tumult had enhanced demand for the Japanese currency, which is a perceived safe-haven.

Brent crude LCOc1 dipped 0.1 percent to $77.50 a barrel.

Prices swerved between $$74.49, a three-week low, to $78.75 this week on speculation towards output by major oil-producing nations.

U.S. crude was down 0.15 percent at $66.94 a barrel CLOc1.

Brent’s premium over U.S. crude reached its widest since March 2015 this week as a lack of pipeline capacity in the United States has trapped a lot of output inland. [O/R]

Editing by Sam Holmes

Published at Fri, 01 Jun 2018 03:33:58 +0000

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World stocks fall for sixth day but Italy, euro in mini-bounce

World stocks fall for sixth day but Italy, euro in mini-bounce

Investors have in recent days scurried for assets such as U.S. and German bonds or the Japanese yen, spooked by the possibility that Italy, the third-biggest euro zone economy, could deliver a bigger boost to eurosceptic parties in a snap election that sources said could be held by end-July.

An election at this point would also be a de facto referendum on Italy’s euro membership, evoking memories of the 2011-2012 euro debt crisis and carrying huge implications for the single currency, whatever its outcome.

However, reports that the two anti-establishment parties were again renewing efforts to form a government rather than force the country back to the polls, helped Milan-listed equities snap a five-day losing streak.

Similarly, short-dated Italian bond yields – a sensitive gauge of political risk – fell almost half a percent from half-decade highs after suffering their worst day in nearly 26 years on Tuesday.

A pan-European equity index was flat on the day after falling almost 4 percent in the past five days.

Barclays investment strategist Hao Ran Wee said that while risks from Italy for world markets had certainly risen, there were significant hurdles for the country to sharply increase spending or exit the euro zone.

“It’s questionable how credible Italy’s threat of leaving the EU actually is, if push comes to shove … As a result, we think the repeat of a 2012-style euro crisis remains a small possibility,” Wee said, adding he remained optimistic on euro zone economic growth and regional equity markets.

Japan’s biggest private life insurance firm, Nippon Life, which holds some 4.8 trillion yen ($44.21 billion) worth of euro zone bonds, also said it had no plans for now to buy or sell its Italian debt holdings.

TRADE FEARS

Equity futures signaled a stronger open on Wall Street, after Tuesday’s harsh session which saw all three U.S. indexes lose between 0.5-1.2 percent, led by financial sector stocks.

Asian markets however remained under pressure, with an index of non-Japanese Asian stocks, hurt also by news that the United States was pressing ahead with tariffs and restrictions on investments by Chinese companies. Beijing meanwhile said it was ready to fight back if Washington ignited a trade war.

Japan’s Nikkei sold off 1.5 percent to a six-week low while Shanghai shares also dropped 1.4 percent. Trade-sensitive emerging equities fell 1.2 percent to 5-1/2-month lows.

“Overall, this (U.S.) move puts a trade war scenario back on the agenda,” Rabobank analysts told clients.

Emerging markets are also suffering from the dollar’s renewed surge since mid-April, with Indonesia raising interest rates for the second time in two weeks to support the rupiah currency.

The politics and fears of an economic hit across the euro zone has driven investors into U.S. Treasuries and German Bunds pushing yields 15-20 basis points lower They have also fueled a sharp rise in the yen and Swiss franc, especially against the euro.

The euro attempted to bounce off 10-month lows against the dollar rising 0.5 percent to $1.160, while against the Swiss franc and yen it firmed around 0.3 percent.

“The risk to the euro is predominantly political in the near term,” Alvin Tan, a currency strategist at Societe Generale, said, adding the euro would likely stay capped at $1.15 or $1.16 until the Italian political crisis was resolved.

U.S. 10-year Treasury yields rose 6.5 basis points to 2.83 percent while German yields rose around 5 basis points

Oil prices meanwhile struggled as expectations grew that Saudi Arabia and Russia would pump more oil to counter potential supply shortfalls from Venezuela and Iran, even as U.S. output has surged in recent years.

Brent futures traded around $75.50 per barrel, well off recent 3-1/2-year highs above $80.

Reporting by Sujata Rao; additional reporting by Tomo Uetake and Hideyuki Sano in Tokyo and Swati Pandey in Sydney; Editing by Alison Williams

Published at Wed, 30 May 2018 11:27:17 +0000

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Market turmoil spreads to Asia

White House slaps 25% tariff on Chinese goods
White House slaps 25% tariff on Chinese goods

Market turmoil spreads to Asia

Asian stock markets slumped Wednesday as jitters spread over Italy’s escalating political crisis and renewed US-China trade tensions.

In morning trading, Japan’s Nikkei fell 1.8%, Hong Kong’s Hang Seng slid 1.3%, and China’s Shanghai Composite was down 2%.

The losses across Asia came after sharp declines Tuesday in Europe and the United States, where the Dow closed down 1.6%.

Traders in Asia said investors were exiting riskier assets such as stocks after political turmoil in Italy sparked fears over the future of the euro and the White House revived plans to slap tariffs on $50 billion worth of Chinese goods.

Italy is headed for new elections after populist politicians failed to form a government, and investors worry the result could throw the European Union into turmoil. They are demanding higher yields to hold Italian government debt.

“This potential crisis is monumental,” Stephen Innes, head of Asia-Pacific trading at foreign exchange firm Oanda, said in a note to clients.

He pointed out that Italy’s economy is far bigger than that of Greece, the source of the last eurozone crisis.

Investors in Asia are also worried about President Donald Trump’s hardening stance on trade with China. The administration announced Tuesday that it would proceed with its proposal to impose 25% tariffs on $50 billion worth of goods from China and place new limits on Chinese investments in US high-tech industries.

The decision was a surprise, coming less than two weeks after China and the United States said they had agreed to put threats of new tariffs on hold.

China’s Commerce Ministry said the Trump administration’s latest announcement is “obviously in violation of the consensus” reached by the two countries in recent talks.

Jingyi Pan, a market strategist at broker IG Group, said the move may be interpreted as a negotiating tactic ahead of Commerce Secretary Wilbur Ross’ planned visit to China this weekend for more trade talks. But it’s still adding to negative sentiment in Asian markets, she added.

The gloomy mood may not continue in US markets later Wednesday, though. Dow futures indicated small gains.

Published at Wed, 30 May 2018 04:45:20 +0000

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Russian oligarch quits board of his sanctioned aluminum giant

 

Exclusive: VTB Chairman speaks out after being hit by U.S. sanctions
Exclusive: VTB Chairman speaks out after being hit by U.S. sanctions

Russian oligarch quits board of his sanctioned aluminum giant

  @CNNMoneyInvest

Russian oligarch Oleg Deripaska is distancing himself from his massive aluminum company that’s reeling from crippling US sanctions.

Rusal, the world’s second largest aluminum producer, said in a statement Friday to the Hong Kong stock exchange that Deripaska, its founder, has stepped down from his role as a non-executive director on its board.

It said the decision was taken in order to “protect the interests of the company and its shareholders.” His departure follows those of the company’s CEO and seven other directors, which were announced Thursday.

Rusal, which produces 7% of the world’s aluminum, has been under intense pressure following US-imposed sanctions, which targeted a number of oligarchs and government officials including Deripaska.

The measures were designed to punish Moscow for meddling in the 2016 US presidential election. For Rusal, they prompted a scramble among international aluminum buyers and commodity exchanges to sever ties to the company, putting its survival in doubt. The company’s stock lost about two-thirds of its value in the wake of the sanctions announcement.

The US government has previously made clear that sanctions on Rusal could be lifted depending on how much Deripaska is willing to distance himself from the company.

The Russian billionaire, who has close ties to President Vladimir Putin, agreed last month to reduce his stake in EN+ Group — the holding company that controls Rusal — to below 50%. He also resigned from the board of EN+.

EN+ and Rusal are part of a tangled web of corporate entities under Deripaska’s control. EN+, which went public last year in London, has a 48.1% stake in Rusal.

Rusal is now taking steps to loosen its ties to EN+. All seven Rusal directors whose departures were announced Thursday had been nominated for their seats on the board by EN+.

Published at Fri, 25 May 2018 05:17:00 +0000

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NAFTA math may not add up to more U.S. auto jobs

by manfredrichter from Pixabay

NAFTA math may not add up to more U.S. auto jobs

DETROIT (Reuters) – Trump administration demands in NAFTA trade negotiations meant to push auto jobs back to the United States may not be enough to spark a shift in where automakers build cars and trucks.

New math to determine what qualifies as vehicle content, what limits apply to allow tariff-free auto imports and how long companies would have to comply under a new NAFTA agreement will likely not move the needle for Detroit automakers in particular, industry executives and supply chain experts said.

Automakers are unlikely to uproot billions of dollars of investments in plants and supply chains. And those that cannot comply with standards for passenger cars could simply pay tariffs of around $800 to $900 per vehicle and buy low-cost parts from Asia to offset the cost, industry experts said.

“Broadly speaking the (tariff) increase isn’t big enough to make a wholesale change,” said Mark Wakefield, head of the North American automotive practice for consultancy AlixPartners. “No one is likely to shut down an active factory in Mexico and build a new one to replace that in the U.S.”

Tough U.S. proposals on autos are meant to bring back U.S. manufacturing jobs and central to the Trump administration’s approach to renegotiating the North American Free Trade Agreement between Canada, Mexico and the United States.

General Motors Co, soon to be the only Detroit Three automaker building pickup trucks in Mexico, is confident it could comply with content requirements for trucks the United States proposes without shifting production, a person familiar with the company’s plans said.

But GM’s Mexican-made trucks already have a significant share of their value, such as engines, produced in the United States at United Auto Workers union-represented factories, and GM would get another boost if it is allowed to tally engineering done in Michigan.

GM is retooling a high-volume factory to build a new generation of large Chevrolet and GMC pickups in Silao, Mexico. Pickup trucks that do not have enough U.S. or North American content under NAFTA rules could be hit with a crippling 25 percent tariff.


Last year GM churned out more than 400,000 large pickup trucks from Silao, more than 40 percent of its 2017 U.S. pickup truck sales.

Fiat Chrysler Automobiles NV Chief Executive Sergio Marchionne said on Friday a revised treaty could prompt FCA to “redirect” some Mexican production but would not cause it to further dial back its presence in Mexico.

In January FCA had said it would shift production of heavy-duty pickup trucks from Mexico to Michigan in 2020 to reduce the profit risks should the United States pull out of NAFTA.

Senior U.S., Canadian and Mexican officials on Friday ended a week of talks without a deal to modernize NAFTA, agreeing instead to resume negotiations soon, ahead of a deadline next week.

RUBIK’S CUBE OF RULES

The United States wants 40 percent of the value of light-duty passenger vehicles and 45 percent of a truck’s content to be built at hourly wages of $16 to qualify for tariff-free import from Mexico.

Those demands are aimed at preserving relatively higher-wage U.S. and Canadian production and pressuring Mexico’s low auto wages.

Mexico wants 70 percent of a vehicle’s content to be made within North America, less than the 75 percent U.S. negotiators propose.

Automakers that do not comply with tougher U.S. or North American content and wage rules, if adopted, could face 2.5 percent tariffs on cars or sport utility vehicles shipped to the United States from Mexico. That may be a level of pain they can live with.

Automakers producing sedans, SUVs and crossovers in Mexico include Ford Motor Co, Toyota Motor Corp, Mazda Motor Corp, Nissan Motor Co Ltd, Honda Motor Co Ltd and Volkswagen AG (VOWG_p.DE).

The U.S. proposal would allow automakers to count salaries for engineering, research, sales, software and product development jobs, a provision favoring Detroit automakers versus foreign brands.

And companies would have two, four or nine years to comply, depending on the specific condition involved.

Still, some automakers are more of a question mark, especially when it comes to trucks. Toyota plans to expand production in Mexico of its Tacoma pickup trucks, part of a realignment of its North American manufacturing that includes a new $1.6 billion assembly plant in Alabama.

It also makes Tacomas in San Antonio, Texas, so could in theory switch production. The automaker declined to comment.

And the Trump administration proposals could complicate matters for electric vehicles and self-driving cars automakers want to build in Mexico. The U.S. proposals call for 75 percent of an electric or autonomous vehicle’s value to be made within North America to avoid tariffs.

Since much of those vehicle’s value can come from batteries made overseas, that means automakers must make up for the content largely on the human side.

At nine years, electronic vehicles are subject to the longest period until they must comply.

“EVs and AVs have so much electronic content and there is no electronics industry here,” said Kristin Dziczek of the Center for Automotive Research in Ann Arbor, Mich. “Nine years is not enough to build up an electronics industry to that scale.”

Reporting By Nick Carey; Editing by Meredith Mazzilli

Published at Mon, 14 May 2018 05:05:53 +0000

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Surging oil prices rattle President Trump

Trump attacks OPEC for rising oil prices
Trump attacks OPEC for rising oil prices

Surging oil prices rattle President Trump

The oil market has caught President Trump in an awkward spot between his pro-business instincts and his populist tendencies.

Trump, a major friend to the fossil fuels industry, took OPEC to task on Friday for the recent surge in oil prices. The price has climbed toward $70 in recent weeks, the highest in more than three years.

“Looks like OPEC is at it again,” Trump tweeted. “Oil prices are artificially Very High! No good and will not be accepted!”

Trump is right that OPEC, the Saudi-led cartel, has orchestrated higher prices, as it’s known to do. And millions of American voters will probably share the president’s outrage if gasoline prices soar as a result.

Yet millions of Trump voters also live in states such as Texas, Oklahoma and North Dakota that depend on the oil industry for prosperity. The 2014-2016 oil price crash cost countless jobs and led to dozens of corporate bankruptcies.

Trump has pushed an agenda of American “energy dominance” by slashing environmental regulations and green-lighting pipeline projects.

“These oil-producing states are Trump red states. They’re part of his coalition,” said Joe McMonigle, senior energy policy analyst at Hedgeye Risk Management, an investment research firm. “To have energy dominance you need higher prices to support investment.”

Trump has close ties to Harold Hamm, the billionaire who runs Continental Resources(CLR), a shale oil producer that benefits from higher oil prices. Hamm gave a primetime speech during the 2016 Republican convention, and Trump reportedly considered naming the CEO his energy secretary.

“The president is going to hear from Harold Hamm” about his tweet, said McMonigle, a top Energy Department official under former President George. W. Bush.

Continental Resources did not respond to a request for comment.

Trump portrays himself as pro-business, but he has also attacked major American companies like Amazon(AMZN), threatened to start a costly trade war with China and gone after drug makers for high prices.

Trump’s attack on OPEC could also conflict with his efforts to improve relations with Saudi Arabia, the country pulling the strings at the oil cartel.

The timing of Trump’s tweet is intriguing because OPEC’s strategy hasn’t changed recently.

What has shifted is the impact. Oil prices have soared 12% this year, and the price of gas has jumped to a national average of $2.75 a gallon.

That’s partly because ofproduction cuts by OPEC and Russia, which have successfully mopped up the huge supply glut that caused prices to crash. Officials from OPEC and Russia met on Friday to take a victory lap for their coordinated action.

“OPEC hasn’t done anything different since early 2017,” said Spencer Walsh, oil market analyst at IHS Markit.

“The tweet, in my opinion, is a little misleading and not fully factual,” he said.

Trump himself shares blame for the more recent jump in oil prices. Geopolitical uncertainty briefly caused by US airstrikes in Syria helped lift prices earlier this month. Oil traders are also nervous about Trump’s threats to reimpose sanctions on Iran, a move that could risk up to 1 million barrels per day of oil supply.

“A lot of the reason for higher prices is the president’s policy on Iran,” McMonigle said. “You’re talking about a huge amount of oil at risk. You’re going to see prices spike. That’s US policy. It’s not anything OPEC has done.”

And then there’s Venezuela, the crumbling OPEC country whereinstability has driven down production. The Trump administration is considering imposing oil sanctions on Venezuela that could further drive down supply.

“The thing that’s kicked up the price is the geopolitical escalation, globally,” Walsh said.

Oil prices have also been lifted by resurgent appetite for energy around the world. Global oil demand grew during the first three months of 2018 by the most since late 2010, according to estimates by Goldman Sachs. The investment bank projected that Brent crude, the global benchmark, will riseto $80 a barrel this year, up from $75 today.

Trump’s tweet noted that there are “record amounts of Oil all over the place.”

Of course, OPEC and Russia are certainly not pumping at full capacity. Yet production in the US, driven by the shale oil boom, has climbed to record highs. The US is even expected to eventually topple Saudi Arabia and Russia as the world’s No. 1 producer.

Trump has sought to encourage more production by cutting environmental regulations. He also advanced the controversial Keystone and Dakota Access pipelines.

What he can’t do, at least by himself, is keep oil prices from rising to levels that hurt the economy and upset drivers.

“Other than presidential tweets,” McMonigle said, “the federal government doesn’t have a lot of tools at its disposal to affect prices.”

Published at Fri, 20 Apr 2018 17:07:03 +0000

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Arming the world: Inside Trump’s ‘Buy American’ drive to expand weapons exports

FILE PHOTO: A Danish delegation walks pass Lockheed Martin’s F-35 Lightning II, at the Farnborough Airshow in southern England, July 11, 2012. REUTERS/Luke MacGregor/File Photo

Arming the world: Inside Trump’s ‘Buy American’ drive to expand weapons exports

WASHINGTON (Reuters) – In a telephone call with the emir of Kuwait in January, U.S. President Donald Trump pressed the Gulf monarch to move forward on a $10 billion fighter jet deal that had been stalled for more than a year.

Trump was acting on behalf of Boeing Co, America’s second-largest defense contractor, which had become frustrated that a long-delayed sale critical to its military aircraft division was going nowhere, several people familiar with the matter said.

With this Oval Office intervention, the details of which have not been previously reported, Trump did something unusual for a U.S. president – he personally helped to close a major arms deal. In private phone calls and public appearances with world leaders, Trump has gone further than any of his predecessors to act as a salesman for the U.S. defense industry, analysts said.

Trump’s personal role underscores his determination to make the United States, already dominant in the global weapons trade, an even bigger arms merchant to the world, U.S. officials say, despite concerns from human rights and arms control advocates.

Those efforts will be bolstered by the full weight of the U.S. government when Trump’s administration rolls out a new “Buy American” initiative this week aimed at allowing more countries to buy more and even bigger weapons. It will loosen U.S. export rules on equipment ranging from fighter jets and drones to warships and artillery, the officials said.

Reuters has learned that the initiative – which industry sources said will be announced on Thursday – will provide guidelines that could allow more countries to be granted faster deal approvals, possibly trimming back to months what has often taken years to finalize.

The strategy will call for members of Trump’s cabinet to sometimes act as “closers” to help seal major arms deals, according to people familiar with the matter. More top government officials will also be sent to promote U.S. weapons at international air shows and arms bazaars.

Shares of major U.S. defense contractors added to gains after the news and Raytheon hit an all-time high.

Human rights and arms control advocates warn that the proliferation of a broader range of advanced weaponry to more foreign governments could increase the risk of arms being diverted into the wrong hands and fueling violence in regions such as the Middle East and South Asia.

The Trump administration stresses that the main aims are to help American defense firms compete better against increasingly aggressive Russian and Chinese manufacturers and give greater weight than before to economic benefits of arms sales to create more jobs at home.

One Trump aide, speaking on condition of anonymity, said the new initiative is also intended to ease human rights restrictions that have sometimes led to an effective “veto” over certain arms deals.

“This policy seeks to mobilize the full resources of the United States government behind arms transfers that are in the U.S. national and economic security interest,” a White House official said, responding to a request for comment on the story.

“We recognize that arms transfers may have important human rights consequences,” the official said. “Nothing in this policy changes existing legal or regulatory requirements in this regard.”

One of the main architects of the new policy has been economist Peter Navarro, a China trade skeptic ascendant in Trump’s inner circle. His effort to boost arms exports has drawn little resistance within the White House, officials said.

‘WHOLE OF GOVERNMENT’

The initiative has been in the works for months and some of its expected components have already been reported. But with the rollout nearing, more than a dozen industry sources and current and former U.S. officials have provided Reuters with the most complete picture yet of Trump’s policy, though they caution that last-minute changes are still possible.

The policy will call for a “whole of government” approach – from the president and his cabinet on down to military attaches and diplomats – to help drum up billions of dollars more in arms business overseas, U.S. officials said.

It will also call for cutting red tape to secure faster deal approval on a broader range of weaponry for NATO members, Saudi Arabia and other Gulf partners as well as treaty allies such as Japan and South Korea, among others, they said. Many details will remain classified.

Companies that stand to benefit most include Boeing and the other top U.S. defense contractors, Lockheed Martin Corp , Raytheon Co, General Dynamics Corp and Northrop Grumman Corp. All of their shares have surged by double-digit percentages, led by the doubling of Boeing’s stock price, since Trump took office in January 2017.

Trump’s aides also want more senior officials to attend major international arms shows, including cabinet members such as Defense Secretary Jim Mattis and Commerce Secretary Wilbur Ross, to promote U.S.-made weapons the way countries such as France and Israel pitch their companies” wares.

“If you go to the Paris air show, you see the French foreign minister standing in front of the Airbus pavilion,” one U.S. official said. “We’re getting outplayed so we have to change our culture.”

In addition to the broad arms export initiative, Trump is expected to sign a separate document easing exports of military drones, an item high on foreign governments’ shopping lists, officials said.

U.S. foreign military sales totaled $42 billion last year, according to the U.S. Defense Security Cooperation Agency. Experts say exports from Russia, the largest U.S. competitor, are typically half those of the United States.

The Aerospace Industries Association trade group said it had first lobbied Trump during the 2016 presidential campaign on the need for “bolstering U.S. manufacturing” and encouraging allies to take more responsibility for their own security.

SALESMAN-IN-CHIEF

While many presidents have helped promote the U.S. defense industry, none is known to have done so as unabashedly as Trump, a former real estate developer who seems sometimes at his most comfortable when he is promoting U.S. goods.

Trump regularly discusses specific arms sales with foreign leaders in meetings and on the phone, according to White House statements. And on a trip to Japan last November, he publicly urged Prime Minister Shinzo Abe to buy more American weapons.

More recently, at an Oval Office meeting with Saudi Crown Prince Mohammed bin Salman last month, Trump held up posters with pictures of U.S. jets, ships and helicopters and other armaments sold to Saudi Arabia. “We make the best military product in the world,” he boasted to reporters as the prince sat smiling beside him.

Other presidents, including Richard Nixon, Bill Clinton and George W. Bush stressed the need to strengthen the defense industrial base, but they did it more subtly, said William Hartung, director of the arms and security project at the Center for International Policy, a non-partisan think tank.

“Nobody’s been as blatant about it as Trump,” he added. “Nobody has yelled it from the rooftops.”

Former President Barack Obama would sometimes talk to allied leaders about weapons systems that he felt suited their security needs, but aides said he preferred to keep weapons salesmanship at arm’s length.

The Trump administration’s plan to overhaul the Conventional Arms Transfer policy, the framework for evaluating foreign sales, goes well beyond Obama’s relaxation of rules in 2014 that enabled U.S. arms contractors to sell more overseas than ever before. Obama drew a clear line, however, requiring each sale to meet strict human rights standards – though he was criticized at times for allowing some controversial sales.

Trump has already gone ahead with several deals that Obama blocked, including the sale of $7 billion in precision-guided munitions to Saudi Arabia despite human rights groups’ concerns they have contributed to civilian deaths in the Saudi-led campaign in Yemen’s civil war.

ANATOMY OF A TRUMP-ERA DEAL

How Boeing’s Kuwait deal got on Trump’s agenda for the Jan. 17 call with Kuwait’s Emir Sheikh Sabah Al-Ahmad Al-Jaber al-Sabah illustrates how seriously the administration is taking the arms export push.

The State Department granted approval in November 2016, in the final months of the Obama administration, for Kuwait to buy 40 F/A-18 Super Hornet strike fighters.

But Kuwait, a U.S. Gulf ally, appeared to drag out negotiations, U.S. officials and industry sources said, and the purchase was still not finalized by the time the emir visited Trump at the White House last September.

Trump told reporters at the time that, at the Kuwaiti leader’s request, he had intervened and won State Department authorization for the deal – a false claim since that approval had already been granted nearly a year earlier.

Months later, Boeing’s request for a presidential nudge to Kuwait was channeled to National Security Council aides, who included it among Trump’s “talking points” for the January phone call, two people close to the matter said.

This time, Trump did make a difference. Just days later, Kuwaiti state media reported the deal was done.

The Kuwaiti government did not respond to requests for comment. A Boeing spokesman declined comment.

Reporting By Mike Stone and Matt Spetalnick; Editing by Chris Sanders and Ross Colvin

Published at Tue, 17 Apr 2018 20:21:44 +0000

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Global funds cut stock exposure to four-month low amid trade war fears

Global funds cut stock exposure to four-month low amid trade war fears

LONDON (Reuters) – Spooked by brewing trade tensions and a broad reversal in technology shares, global investors have cut their equity exposure to a four-month low this month while reducing their holdings of U.S. stocks to the lowest in nearly two years.

Reuters’ monthly asset allocation poll of 53 wealth managers and chief investment officers in Europe, the United States, Britain and Japan was carried out from March 12 to 27.

During this period, U.S. moves to slap tariffs on steel and aluminium imports, and on up to $60 billion of Chinese goods, sent world stocks to six-week lows.

Investors have been worried that tit-for-tat retaliatory measures from China and a deterioration in world trade could hinder economic global, prompting a sharp risk-off move in markets.

“Trade tariffs … while they should not end up in a full-blown trade war, risk weighing on market sentiment just when liquidity is diminishing and financial conditions are expected to tighten,” said Pascal Blanque, chief investment officer at Amundi.

In the poll, investors cut their equity holdings by almost 1 percentage point to 48.1 percent of global balanced portfolios — the lowest level since November — while raising bond holdings by 2.3 percentage points to 39.3 percent.

Within equity portfolios, managers cut their U.S. exposure to 38 percent, the lowest since April 2016.

U.S. stocks look set to end the month down 4 percent, hammered by trade war fears and worries about tighter regulation for the tech sector after a furore over the use of Facebook data by political consultants.

Peter Lowman, chief investment officer at Investment Quorum, said it had been a testing time for equity investors, and articulated the threat to the U.S. economy and consumer of a trade war.

“U.S. companies operating in China would be affected whether it is Apple or a U.S. car manufacturer,” he said, adding that Chinese exports to the United States improved the American standard of living through the provision of cheaper goods.

FALLOUT FEARS

A 62 percent majority of poll participants who answered a question on the outlook for the U.S. dollar in the event of a full scale trade war said that it would weaken.

The dollar hit a five-week low against a basket of six other major currencies in March.

Raphael Gallardo, a strategist at Natixis Asset Management, said that while first-round effects, such as a reduction in the U.S. trade deficit, might initially strengthen the dollar, ultimately it would weaken due to retaliation by U.S. trading partners.

“More importantly, the trade war triggered by tariffs would end up weakening further the prospective rate of return on investment in the U.S.,” he said.

The outlook for the dollar is complicated by the fact that the U.S. Federal Reserve is raising rates, targeting at least two more hikes for 2018 after a 25 basis points hike in March.

A slim 56 percent majority of poll participants who answered a question on this topic expected three rate hikes this year, but a third opted for four, saying the Fed was behind the curve.

Several noted it would take just one FOMC member to upgrade their expectations to tilt the Fed’s median projection from three to four hikes for the year.

“The 2018 dot plot is more hawkish than the median three hikes imply,” said Jan Bopp, an investment strategist at J Safra Sarasin. “The 2018 call was a close one, and the move up in 2019 and beyond was clearly a reflection of the strengthening of the economic outlook.”

GROWTH CATALYSTS

There was less consensus over the outlook for the euro zone economy, with just 51 percent of poll participants who answered a question on this saying growth had not yet peaked in the current cycle.

“While inflation expectations have peaked short-term and German industrial activity has slowed, cheap financing will continue to be a driver as well as the robust global trade environment,” said Jean Medecin, a member of the investment committee at Carmignac.

Euro zone businesses rounded off the first quarter of 2018 with their slowest growth in over a year and economic sentiment data has underwhelmed.

European equities look set to end the month down around 2.3 percent.

In the poll, investors cut their euro zone equity holdings slightly to 19.9 percent, but while some investors said growth might be slowing, with the stronger euro hampering export growth, it would not fall sharply.

“Growth catalysts like low real interest rates are still very much with us, so growth levels could remain above trend near term,” said Peter van der Welle, a strategist at Robeco.

Reporting by Claire Milhench; additional reporting by Maria Pia Quaglia and Hari Kishan; Editing by Hugh Lawson

Published at Thu, 29 Mar 2018 11:48:04 +0000

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Not just Facebook: China’s tech titan getting crushed

China's multifaceted messaging app: WeChat
China’s multifaceted messaging app: WeChat

Not just Facebook: China’s tech titan getting crushed

Facebook isn’t the only big internet business whose stock is taking a beating.

Tencent(TCEHY) — the company often referred to as China’s Facebook — has lost more than $70 billion in marketvalue over the past week.

Wall Street has pummeled Facebook’s(FB) stock after the Cambridge Analytica data-harvesting scandal. But Tencent, the biggest publicly traded tech company in Asia, is caught in a perfect storm of problems.

Investors worry about Tencent’s future growth prospects, a major shareholder offloading a big stake and the global slump in tech stocks triggered by Facebook’s crisis.

Tencent’s profit soared 98% last quarter, but some analysts say they’re concernedthat the company’s heady momentum over the last few years could be losing steam.

They pointed out that revenue missed market expectations and declined at the company’s important mobile games division. WeChat, the company’s flagship social network, is also adding users more slowly than before.

Tencent also warned that planned investments in artificial intelligence, video and mobile payments would probably hurt profit in the near term. That prompted analysts at investment bank Credit Suisse to cut their earnings forecasts for the company.

After heavy losses in the tech-focused Nasdaq on Tuesday in the United States, Tencent shares plunged nearly 5% in Hong Kong on Wednesday.

Tencent’s biggest single shareholdersoldabout $10 billion worth of stock last week, addingto the pain.

South Africa-based investment firm Naspers took a stake inTencent early in the Chinese company’s rise, a bet that has paid off in spectacular fashion. Naspers’ stake was worth about $35 million when it bought it in 2001. Even after selling off a chunk of it last week, Naspers’ holding is now worth roughly $156 billion.

The firm said it doesn’t plan to offload any more Tencent shares for at least another three years and is committed to the Chinese company for the long haul. It still owns a stake of more than 31%.

“Tencent is one of the best long-term growth opportunities in any industry, in any market,” Naspers’ chief financial officer, Basil Sgourdos, told CNNMoney on Friday.

There are plenty of analysts who agree it’s worth sticking with Tencent. Of the 43 analysts that follow the stock, 39 still have a buy rating on it, according to data provider Factset. Despite the recent plunge, Tencent’s stock is still up about 83% from a year earlier.

Analysts at investment bank Nomura say they expect Tencent’s stock to rebound as the company gains new mobile-gaming customersand increases revenue from services like mobile payments and advertising.

Published at Wed, 28 Mar 2018 13:52:43 +0000

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New US deal with South Korea: What you need to know

Korea flag

by Big_Heart from Pixabay

New US deal with South Korea: What you need to know

President Donald Trump has his first trade deal.

Senior US officials on Tuesday gave details on an agreement in principle with South Korea to revise a trade deal that originally went into effect in 2012.

The officials said the agreement was an example of Trump delivering on his promise to voters to negotiate better trade deals for the United States.

“This agreement is visionary and innovative,” one senior administration official, speaking on background, told reporters.

The US officials made their case for why the revised deal is an improvement on the one that’s currently in effect, which Trump has slammed as “horrible” and a “job killer.” The South Korean government first announced details of the agreement on Monday.

Some economists have suggested the new deal isn’t significantly different from the old one. South Korean exporters will be relieved that none of the tariffs that were lifted under the original agreement have been brought back, according to Krystal Tan, an economist at research firm Capital Economics.

Experts point out that the negotiations lasted only a few months, far shorter than trade talks typically take. Striking a deal quickly, they note, has the advantage of removing a potentially divisive issue between the two military allies at a time of tensions and delicate talks with North Korea.

Here are some of the main takeaways from the new agreement:

Auto exports

The Trump administration says some of the key changes affect the auto industry, which accounts for a big chunk of the trade deficit the United States runs with South Korea.

Under the revamped deal, each US carmaker will be allowed to export 50,000 vehicles per year to South Korea that meet American safety standards, up from 25,000 previously. Beyond that threshold, cars shipped from the United States will have to comply with South Korean safety rules, which American companies say put them at a disadvantage.

But analysts say the increased quota is unlikely to make much difference anytime soon. No US automaker sold more than 11,000 cars in South Korea last year.

Trump administration officials argue, though, that US car companies should benefit from an agreement by South Korea to ease “burdensome” auto regulations more broadly. That includes reducing additional tests and getting rid of labeling requirements that, the administration argues, hinder American automakers’ ability to sell in South Korea.

The revised deal also postpones the phasing out of a US tariff of 25% on pickup trucks from South Korea. It will now end in 2041 rather than 2021. Capital Economics says no Korean automaker exports pickup trucks to the US at the moment.

Steel tariff exemption

The US government has linked the agreement on a revised trade pact with the decision to cut South Korea some slack on Trump’s recent broad tariffs on steel and aluminum imports.

South Korea will still be subject to the 10% tariff on aluminum that was imposed on most nations. But it is largely exempt from the 25% tariff on steel.

Under the arrangement, 70% of the average amount of steel that South Korea exports to the United States each year will be permanently exempt from the new 25% tariff, officials said. Anything above that amount will still be subject to it.

Several other US allies — including Canada, Mexico and the European Union — have been granted temporary exclusions from the tariffs.

Currency clause

The United States and South Korea also agreed to try to make sure neither country devalues its currency intentionally to gain an unfair advantage on trade. But the measure lacks teeth.

When a currency is weaker, it makes exports cheaper — and more attractive — to foreign buyers. It also makes foreign imports more expensive for local consumers. On the campaign trail, Trump repeatedly railed against other countries that he accused of purposely devaluing their currencies to get an unfair edge over the United States.

The United States has never included a provision on currencies in a trade negotiation before, according to Trump administration officials.

But the devil is in the detail. The currency provision is not actually in the official agreement and has no enforcement mechanism. Including it in the text of the deal would have required a lengthy legislative approval process, a path that administration officials indicated they did not want to go down.

In effect, both countries are just agreeing to act in good faith with their currencies.

Published at Wed, 28 Mar 2018 03:27:48 +0000

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What happens when the world’s two biggest economies turn on each other

by TechPhotoGal from Pixabay

What happens when the world’s two biggest economies turn on each other

America and China, the world’s two largest economies, may soon be in a trade war.

Leaders from the two nations have announced tariffs on each other. But the real fear among businesses, investors and lawmakers: Escalation.

This could just be the beginning — “the first of many” trade actions, as President Trump put it Thursday.

Trump announced plans Thursday to impose tariffs of 25% on $50 billion of Chinese exports. On Friday, Trump’s global tariffs on steel and aluminum, which includes China, went into effect. Responding to those two latter tariffs, China said it wouldimpose tariffs on $3 billion of US exports to China.

If it ends there, the skirmish is unlikely to have serious global implications. But the pain of higher costs and prices will be felt by workers, businesses and consumers, both directlyand indirectly.

Here’s what we know, and what might be in store in the future.

The US will hit Chinese tech and industry

The United States will impose a tariff of 25% on steel coming from China and a 10% tariff on its aluminum. Most nations will be subjected to same US-imposed duties.

The Trump administration will also slap a 25% tariff on a range of unannounced products from China, including, but not limited to, communication technology, aerospace, information, and machinery. This comes after a US investigation concluded China systematically discriminated against US tech companies operating in that country.

These are key trading items. In 2017, the US imported about $150 billion worth of products from China across all those categories. The imports were heavily weighted toward computer and semiconductor equipment, according to US government data and Panjiva, a research firm recently acquired by S&P Global Market Intelligence.

China is hitting US farmers and vineyards

China announced Friday it would put tariffs on 128 US exports in response to the steel and aluminum tariffs, according to China’s Commerce Ministry. More tariffs could come in retaliation to the US tariffs related to the tech probe.

China’s tariffs on US goods would mostlytarget wine, fruit, pork, recycled aluminum and nuts. A full list has not yet been published, but the tariffs would take effect March 31. Tariffs would range from 15% to 25%, depending on the product.

All those imports total $3 billion per year, a relatively small amount.

That’s just where it begins, though.

China is thetopcustomer for America’s 300,000 soybean farmers. China bought 61% of US soybean exports last year, according to the US Soybean Export Council. So far, China has not mentioned it would tariff US soy, but the foreign ministry ominously reminded reporters last week of that figure.

China also doesn’t have to slap tariffs on American farmers to punish the US. It could simply do more business with South America.

Brazilian soy exports to China surged nearly 35% last year compared to the year prior while US soy was only up 2%, according to Panjiva. Brazil ships more soy to China, its top trade partner, than the United States does. Experts say the surge last year was not related to trade policy, but it shows how China has another alternative to US soy.

China owns more US government debt than any other nation — and its appetite could cool

China owns $1.17 trillion of US government debt, according to the Treasury Department. That makes it America’s biggest lender. China’s holdings move slightly up and down, but as of January they were at a six-month low.

It’s unlikely China would dump a lot of its US Treasury bonds all at once — after all, a major debt sale like that would cause prices for the US debt remaining in its portfolio to go down.

The real problem: What if China loses its appetite and doesn’t buy much more US debt?

The United States government needs to issue nearly $1 trillion debt this fiscal year to cover its deficit, which is expected to swell more in the years to come because of the GOP tax cuts. To fund a deficit, the US sells more debt to other nations, foreign investors, American citizens and US banks. It’s considered one of the safest investments in the world.

It’s impossible to know what would happen if China stopped buying US debt, or significantly slowed its purchases. But at a minimum, it’s not an ideal time for the US to aggravate its biggest lender.

Is it the end of the global economy as we know it?

That question sounds dramatic, but the global perceptions of China and the US on trade are reversing.

The United States has been the poster child for free trade since World War II and China the ultimate protectionist. Now, the US is seeking tariffs while China, at least rhetorically, says it wants to fight protectionism.

The presidents of Chile and Colombia both described the scenario as “the world upside down.”

Free trade economists say the US is forfeiting its leadership role in global trade, while the Trump administration argues it’s trying to make trade benefit more Americans.

Meanwhile, China is expanding its global footprint, seeking to develop an ambitious global trade highway known as the One Belt, One Road Initiative.

And geopolitical implications are endless, includingreverberations with North Korea, Russia, Iran, Latin America, and the Middle East. Trade experts argue that economic links like trade help prevent real wars. They make countries more dependent on each other, those experts say, and less likely to pursue armed conflicts.

Is Trump’s bite as bad as his bark?

All these concerns could be much ado about nothing. Trump was set to impose the steel and aluminum tariffs on every country. Top allies, and trade partners, were threatening retaliation.

Then Trump gave exemptions to Mexico, Canada, the European Union, South Korea, Australia, Brazil and Argentina. That means the top four steel exporters to the US and four of the top seven aluminum exporters won’t face the tariff.

Trump also repeatedly threatened to tear up NAFTA, the trade deal between the US, Canada and Mexico. US Trade Representative Robert Lighthizer, who has been pessimistic about talks for months, told senators Thursday that all three sides are now making meaningful progress.

Trump’s tariffs stemming from the tech investigation on China don’t take effect for two weeks. That’s a long time in this White House.

Published at Sun, 25 Mar 2018 14:46:54 +0000

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These American companies could lose in a trade war with China

by TheDigitalArtist from Pixabay

These American companies could lose in a trade war with China

A trade war with China could be very bad news for some of America’s largest companies.

Stocks sank Thursday as investors worried about the Trump administration’s announcement of new tariffs on Chinese imports.

If China retaliates, life may become difficult for Apple, Boeing, Intel and other multinational companies in the Dow and S&P 500 that have started to do more business in the world’s most populous nation.

Apple(AAPL) generated $18 billion in revenue — 20% of its total sales — from China in just its most recent quarter. Boeing’s(BA) China sales last year were nearly $12 billion, almost 13% of its overall revenue.

Chip giant Intel(INTC) — as well as fellow semiconductor firms Texas Instruments(TXN), Nvidia(NVDA), Micron(MU) and Qualcomm(QCOM) — also have a big presence in China thanks to manufacturing plants there and Chinese tech companies that use their processors.

The Trump administration just blocked Singapore-headquartered Broadcom’s(AVGO) proposed takeover of Qualcomm as well, adding to some geopolitical tensions.

But the growth of the middle class in China has helped other big US companies too.

Dow component Nike(NKE), which will report its latest results after the markets close Thursday, sold $1.2 billion of sneakers and athletic apparel in China in its last quarter. That’s 15% of the House of Swoosh’s total revenue.

Post-It and Scotch Magic Tape maker 3M(MMM), also in the Dow, generated 10% of its sales from China last year too. And sales in China were up 16% in 2017, compared to just 1.5% in the United States.

GM (GM)said earlier this year that it and its joint venture partners sold more than 4 million vehicles in 2017 — a record high fueled by strong demand for the Cadillac and Buick brands.

Starbucks(SBUX) has made a big bet on China as well — and it appears to be paying off. The coffee giant now gets about 14% of its sales from China — and sales are growing at a faster pace there than they are in the United States and other developed markets.

Casino giants Las Vegas Sands(LVS) and Wynn Resorts(WYNN) could also be hurt by China’s potential retaliatory moves. Both of those companies generate more than half their revenue from the Chinese special administrative region of Macau — not Sin City.

So even though President Trump is acting to try and protect American workers from Chinese competitors that are selling more of their goods and services in the United States, many American companies stand to lose big if China fights back with tariffs of its own.

Published at Thu, 22 Mar 2018 17:47:05 +0000

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One idea to stop Venezuela’s downward spiral: Switch to the US dollar

Venezuela's economy on the brink of collapse
Venezuela’s economy on the brink of collapse

One idea to stop Venezuela’s downward spiral: Switch to the US dollar

Venezuela’s currency, the bolivar, lost nearly all its value last year as the country spiraled into an economic crisis.

One solution gaining popularity: Get rid of the bolivar and replace it with the US dollar.

The idea is called dollarization. Ecuador, El Salvador and some small island nations have done it. Now it could be coming to Venezuela, widely considered the world’s worst economy not mired in an armed conflict.

Venezuela has a presidential election this spring, and Henri Falcon is seen as the top opposition candidate to the incumbent, Nicolas Maduro. Francisco Rodriguez, a former Wall Street economist who advises Falcon, says he would shift the nation to the dollar to cure its biggest problem, soaring inflation.

venezuela currency crash

Prices are rising much faster than wages. Venezuelans are going hungry and hospitals are ill-equipped because of widespread shortages of medicine and food. The average Venezuelan living in poverty last year lost 25 pounds, according to a recently published study.

That problem is likely to get worse: The International Monetary Fund projects prices will rise 13,000% this year.

Some experts say Venezuela must move to the dollar before it can solve all its other problems, which include rampant crime and a mass exodus of its citizens.

“There’s no way they can get anything under control in Venezuela unless they dollarize,” says Steven Hanke, a professor at Johns Hopkins University who advised the governments of Ecuador and Montenegro when they ditched their currencies for the dollar. “The bolivar is gone already.”

Here’s how it would work. The government would establish a temporary exchange rate for its citizens to swap bolivars for dollars.

Venezuela would have to agree to get its printed cash only from the US Federal Reserve. Governments forfeit the right to print their own money when they convert to the dollar.

Venezuela wouldn’t be able to order the Fed to print endless amounts of cash, either. By taking on the dollar — the exchange rate for which is controlled by foreign markets — leaders would effectively have to commit to reel in spending.

To pay for cash shipments from the Fed, Venezuela would still have to make money on its exports, such as oil, and collect taxes. Experts say the transition would be easier for Venezuela than other nations because its only source of meaningful income is oil, which is bought and sold only in dollars.

If he stays in power,Maduro seems unlikely to swap the bolivar for the dollar. His government spends at will and blasts US capitalism.

As for Falcon, Maduro’s top opponent, his team says Venezuelans would be able to exchange 68 bolivars for one dollar. Some economists say it’s soon to place an exact number on what the exchange rate would be. The current, unofficial exchange rate that millions of Venezuelans use everyday is about 216,000 bolivars for one dollar.

Some economists say countries give up too much control over their own currency when they adopt the dollar.Another option would be for a new government to introduce an entirely new currency along with a plan to rein in federal spending.

“Dollarization is a solution, but it’s not the optimal solution,” says Jean Paul Leidenz, senior economist at Ecoanalitica, a Venezuela-based research group. “It’s an extreme measure.”

Although unlikely to dollarize, Maduro isn’t entirely opposed to a new currency in principle. His government recently created the world’s first sovereign cryptocurrency, the petro. It remains unclear how successful the petro was in private auctions.

The Maduro regime’s spending spree — on subsidies, free housing, wage hikes and much more — has badly damaged the economy, says Raul Gallegos, a Bogota-based consultant at the global advisory firm Control Risks.

“Dollarization is essentially when you chop off your left arm to prevent gangrene from killing you,” he says.

A move to the dollar is likely only if Falcon defeats Maduro in May, and that is uncertain. Some opposition parties have boycotted the election, claiming Maduro will rig it. Maduro has also banned some of his top opponents from running for office.

The Trump administration, along with many other governments, labels Maduro a dictator. Last July, Maduro’s party replaced the opposition-backed legislature with an entirely new legislature filled with his supporters.

Against that backdrop, outside experts question whether this election will be fair.

Rodriguez, the lead economic adviser for Falcon, did not respond to a request for comment. A Venezuelan TV anchor and Maduro supporter recently asked him whether adopting the dollar would sacrifice Venezuela’s sovereignty.

“You can’t talk about sovereignty when you have a destroyed economy,” Rodriguez said.

Published at Tue, 13 Mar 2018 17:25:22 +0000

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Trade War Fears

Trade War Fears

by THE MOLE

The MSM hasn’t exactly been short of clickbait lately as one supposed global crisis is chasing the next. But suddenly a purported ‘trade war’ between the United States and China is all rage now, and I mean that in the literal sense since everyone seems to be getting their panties in a twist about an issue that in my not so humble opinion has been on the forefront of Chinese/U.S. relations for many years now.

At the same time the loss of about 50,000 factories and the impact on U.S. employment since NAFTA took effect on 1/1/1994 apparently has never been worth much media attention. And sure, of course there are various arguments challenging that perspective. And not being an economist by trade nor ambition my simple response would be: Just take a trip to Baltimore or Detroit and talk to anyone you meet in the streets. Then come back and let’s go over your gripes with the fact that U.S. workers have been squeezed hard over the past few decades.

Whether or not import tariffs on steel and various other products will be a net negative for the U.S. economy and labor remains to be seen. But what clearly does not work is business as usual as has been practiced without care or regard for workers and their families over the past quarter century.

Anyway, be this as it may – all that clickbait cost me a perfectly well running E-Mini campaign. I got out at about 2R in profits which is fine but a long shot from where it was yesterday afternoon.

If I wasn’t leaving tomorrow I would be tempted to grab a long position here but looking at the mess of the past few weeks on the short term panel makes me appreciate the fact that we’re banking profits in equities in the first place. And I’m not going to push my luck ahead of my little trip.

Plus the Dollar keeps dropping (and by extension the EUR is rising). Suffice to say I am not amused. Look at that hourly panel and share your thoughts if you would. All I’m seeing is a market turning on a dime on various  fronts. Could lead to quite a bit of ugliness if buyers don’t start taking shit seriously instead of chasing every single headline. I know, I know – who am I kidding?

Tired Of Winning?

Seems to me that market participants are tired of winning, but not in a Trumpian fashion. Maybe after a ten year bull market investors are subconsciously longing for a big market correction wiping out a big chunk of their assets in the process. A growing cultural malaise that now seems to be seeping into our financial markets as well.

I say bring it on! Bring on the pain! Honestly I’ve grown sick of all the snow-flaking and imaginary threats lurking behind every corner. Some cultural crisis or scandal chasing the next all across the Western hemisphere. A mindset apparently prevalent among a generation that has had the luxury of never experiencing war or true hardship (yes I know there are exceptions). No sweetheart – losing WiFi access or a shortage of soy milk at your favorite Starbucks does not constitute a personal tragedy. Again my previous advice applies, take a road trip to B-more or Detroit and we talk.

So hey, what’s with all the bitching? First up a bit of venting here and there is healthy. But I’m trying to make a point and for once it’s more anthropological than down to business and technical. Although I pride myself as being a no-nonsense kind of guy there are times when you have to heed those intangibles, the nagging voices in the back of your head (your mileage may vary based on your lithium dosage).

Look, we obviously don’t live in the 1990s anymore. Things have changed quite a bit, and perhaps I’m a bit jaded but to me it feels like as if the whee are coming off. I actually think what we all desperately need actually is a large market correction, a big cleansing of sorts. There would be a lot of pain in the short term but I think we all would be better off over the long term. Let’s just get it over with and then look forward perhaps with a bit of hope and optimism in our hearts. Too much to ask? Probably.

Alright let me climb off my soap box. My crude campaign was also rudely interrupted at about 0.6R in profits. Grrrr…  Okay, a win is a win – we executed perfectly and perhaps we trailed a bit too early. Here as well a re-entry would be on my radar but as I’m traveling tomorrow I don’t want to worry about open positions.

Now gold for one is behaving well and I just moved my stop to break/even. I really like that formation and I got big plans for precious metals going forward. Especially if equity traders continue to screw around as discussed above.

What do ya know? The ZB campaign just got another lease on life and has reversed upwards breaching my entry range. That’s very positive but it’s time it’s getting out of the gate.

Alright, this will be my last post for this week and per the above it looks like I clearly need a vacation! Scott has promised to post here tomorrow and as often as he can over the next 10 days or so. No worries – I’ll be popping by as well but don’t expect extended contributions as I’m working off a lappy and being spoiled by 30 glorious inches of screen estate over the years my perspectives will be more narrow.

And yes, once again all services will run as usual, no worries. If you run into any trouble/issues then just email me at admin@. See you once I’m settled near my ocean hide out.

Published at Wed, 07 Mar 2018 13:53:26 +0000

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