Thursday, May 31, 2018

BBC News - US economy grows at a slower 2.2%

Construction workers, Louis Delgado (L) and Tony Rodriguez work on building a Toll Brothers Inc. home on September 26, 2012 in Boca Raton, Florida
Homebuilding investment fell 2% in the first quarter
The US economy grew at an annual rate of 2.2% in the first three months of the year, slightly more slowly than the original estimate of 2.3%.
The Commerce Department published the revision on Wednesday in its second estimate of GDP.
It said exports, inventory investments and consumer spending were weaker than first reported.
The declines exacerbated the slowdown from the fourth quarter of 2017, when US GDP increased by 2.9%.
The first quarter is typically the weakest of the year and many economists expect economic growth to accelerate in coming months, as some activity shifts later in the year.
Compared with the first quarter of 2017, GDP - the measure of goods and services produced in the US, adjusted for inflation - increased by 2.8%, the fastest rate since 2015.
However, some metrics continue to lag behind expectations.
Wednesday's report showed inflation rose 1.6% from the first quarter of 2017. That measure of inflation - personal consumption expenditure excluding food and energy - is the Federal Reserve's preferred indicator,
The Fed has said it is aiming for an inflation rate of about 2%.
Wednesday's report showed consumer spending increased just 1% in the first quarter, instead of 1.1% as originally reported. That marked the weakest growth in almost five years.
Spending on homebuilding, another major economic driver, declined 2%.
However, business investment was higher than previously reported, driven by a more than 10% increase in spending on intellectual property.
The Commerce Department also said the new US tax cut, which reduced the corporate rate from 35% to 21%, was having an effect.
Taxes on corporate profits fell $117.4bn in the first quarter, while after-tax corporate profits climbed 5.9%

Wednesday, May 30, 2018

BBC News - Markets steady as Italian fears ease

Italy flag
European stock markets made a modest recovery and returns on Italian government bonds fell back on Wednesday as fears over political turmoil in the eurozone's third-largest economy eased.
Milan, London and Frankfurt were all higher after sharp falls on Tuesday.
Paris was dragged lower by a sell-off in French banks amid fears about their exposure to Italy.
A successful sale of Italian government bonds was a further sign of investor confidence in the country.
However, Rome was forced to offer a return of 3% on 10-year bonds, more than double the 1.7% at the last auction in late April.
It is also vastly higher than the 0.324% return on German bonds - deemed to be the safest in the eurozone.
The return on five-year Italian bonds soared to 2.32% compared with just 0.56% a month ago and was the highest since February 2014.
Seema Shah at Principal Global Investors said: "Demand at today's auction was very encouraging, and clearly indicates that investors still have faith in the Italian economy, if not the government. Italy is unlikely to face major refinancing problems in the near term."
Barclays investment strategist Hao Ran Wee said: "No investor would lend to the Italian government if they deem it as being unable to pay back its debt."
Reports on Wednesday said that the anti-establishment Five Star Movement and far-right League had renewed efforts to form a coalition government after the president rejected their choice for the economy ministry over the weekend.
The parties were trying to find "a point of compromise on another name" after the rejection of arch-eurosceptic Paolo Savona for the ministry.
Earlier markets in Asia fell, with the Nikkei in Tokyo falling 1.4%, South Korea's Kospi down more than 1.8% and Hong Kong's Hang Seng 1.4% lower.
The falls in Asian stocks mirrored losses in the United States on Tuesday night, when the S&P 500 fell 1.2% and the Dow Jones ended 1.6% lower.

Monday, May 28, 2018

Reuters News - Oil sinks while stocks gain on North Korea, euro shaken by Italy

by Hideyuki Sano
TOKYO (Reuters) - U.S. oil futures hit six-week lows on expectations major producers may ease output curbs on Monday, while Asian stocks and U.S. share futures gained on signs the United States and North Korea were still working towards holding a summit.

The euro bounced back from a 6-1/2-month low after the Italian president rejected a eurosceptic as a key economy minister, but his move was seen as triggering a possible constitutional crisis and opening the prospect of fresh elections, keeping the single currency fragile.

Oil prices extended their decline from last week on growing expectations that major oil producers may ease their 17-month-old production cuts.

A return to the oil production levels that were in place in October 2016, the baseline for the current deal to cut output, is one of the options for easing curbs, Russia’s energy minister said on Saturday.

His comments came after the energy ministers of Russia and Saudi Arabia met to review the terms of global oil supply, ahead of a key OPEC meeting in Vienna next month.

Brent crude futures dropped as much as 2.6 percent to $74.49 per barrel, their lowest level in about three weeks. They last stood at $75.00, down 1.8 percent.

U.S. crude futures dropped to six-week low of $65.80 per barrel, shedding 3.1 percent and is on course to post its fifth day of decline.

U.S. S&P500 mini futures rose 0.4 percent in Asian trade, but market holidays in the world’s two biggest financial centers — London and New York — could make trading slow and illiquid for the day.

South Korea’s KOSPI rose 0.7 percent, buoyed by stocks which are seen as benefiting from a further thawing in tensions with Pyongyang.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.2 percent. Japan’s Nikkei lost steam to trade flat and the broader Topix dipped 0.2 percent.

President Donald Trump said on Sunday a U.S. team had arrived in North Korea to prepare for a proposed summit between him and North Korean leader Kim Jong Un, which Trump pulled out of last week before reconsidering.

“While we can’t say for sure how much they can agree, both sides seem to want to make progress,” said Nobuhiko Kuramochi, chief strategist at Mizuho Securities.

Mizuho sees a 10 percent chance that the summit, so far planned on June 12, will not take place, a 20 percent chance of a truce deal struck at the meeting and a 70 percent likelihood of the summit leading to more talks without producing immediate deals on denuclearisation, he said.

In the currency market, the euro bounced back 0.5 percent to $1.1705 after having a touched a 6-1/2-month low of $1.1646 on Friday.

Italian president Sergio Mattarella rejected a eurosceptic pick for the key economy ministry by the two anti-establishment parties aiming to form a coalition government, the 5-Star Movement and the League.

While his decision allayed immediate concerns of having a eurosceptic minister in the euro zone’s third-largest economy, his move created bigger uncertainties as 5-Star leader Luigi Di Maio, whose party won the most seats at an inconclusive March 4 vote, demanded that parliament impeach Mattarella.

The 10-year Italian bond yield has risen 67 basis points, or 0.67 percentage point, so far this month, on course to make its biggest monthly rise since late 2011.

Its yield spread over benchmark German Bunds rose above 200 basis points for the first time in over a year.

“If the Italian debt prices fall further, people will have to do more hedging, say by selling the euro and so on. The issue will be the biggest focus for markets this week,”

While no one thinks the country will default, people need to make hedging when they face sharp price moves,” said Takafumi Yamawaki, head of currency and fixed income research at J.P. Morgan Securities in Tokyo.

Investors are also increasingly wary of Spain, where Prime Minister Mariano Rajoy is facing growing pressure to resign over a graft case involving his party.

The spread of the Spanish-German debt yields rose to about 105 basis points, the highest since January.

“The euro is being bought back in the near term but it looks capped at around $1.17. But we haven’t seen the kind of panic we saw before the French presidential election last year. I’d bet the euro will slip gradually than fall sharply,” said Kyosuke Suzuki, director of forex at Societe Generale.

The dollar rose 0.1 percent against the yen in early Monday trade to 109.44 yen, extending its recovery from Thursday’s 108.955 on optimism over the upcoming U.S.-North Korea summit.

Elsewhere, bitcoin traded at $7,370, flirting with its 365-day moving average, which stood around $7,360.

Editing by Kim Coghill and Jacqueline Wong

Our Standards:The Thomson Reuters Trust Principles

Friday, May 25, 2018

BBC News - Carney warns on 'disorderly Brexit' fallout

by Kamal Ahmed
Mark Carney, Bank of England governor
The Bank of England governor has said a "disorderly" Brexit could delay rises in interest rates as the Bank would be obliged to act to shore up the economy.
Mark Carney made clear what he described as a "sharp Brexit" could mean a reassessment of whether an interest rate rise is imminent.
And whatever progress is made towards the "new trading arrangements" with the EU, weaker income growth "is likely to accompany that adjustment".
He was speaking at a London conference.
Mr Carney said that the negotiations were entering a "critical phase" and the Bank was prepared in case the transition was not "smooth".
He said the Bank was "ready for Brexit whatever form it takes" and suggested that it might be willing to tolerate higher inflation and retain ultra-low interest rates to support growth and jobs.
The Governor also said that weak growth in the first three months of the year may not just be down to the harsh weather.
Snow in Oxford StreetImage copyrightJEFF OVERS/BBC
Image captionMr Carney said that recent weak growth may not just be due to the harsh weather of February and March
Consumer spending statistics were weaker and the housing market was also showing signs of decline, the Governor argued.
Many economists believe a weaker economy would also be likely to head off any plans to increase interest rates.
The governor also re-iterated the Bank's analysis that the referendum result had damaged the economy.
People's incomes had been squeezed and spending had been cut back, he said, leaving households 4% worse off than the Bank expected before the referendum.
Businesses were also investing less than expected.


"As the consequences of sterling's fall showed up in the shops and squeezed their real incomes, [consumers] have cut back spending growth to rates about one half of those pre-referendum," he said.
Mr Carney argued the fall in the value of sterling happened because "financial markets are valuing today what they expect tomorrow: a relative fall in real incomes as the UK moves toward its new trading arrangements".
"Inflation rose well above the 2% target, peaking at 3.1% late last year, an overshoot entirely due to the referendum-induced fall in the exchange rate."
His speech comes two days after telling the Treasury Select Committee that households were £900 a year worse off due to the referendum.
Those comments brought a sharp response from the Foreign Secretary, Boris Johnson, who said that it was "absolutely not the case that Brexit has damaged the interests of this country".

'Different path'

Mr Carney made clear that the Bank was preparing for all eventualities.
"A sharper Brexit could put monetary policy on a different path," the Governor said.
"For example, if the transition were disorderly, or the end state agreement materially worse than the average potential outcome, then the MPC [the Monetary Policy Committee, which sets interest rates] could once again be confronted by a trade-off between the speed with which it returns inflation to target and the support policy provides to jobs and activity.
"On this path, the MPC can be expected to set policy to manage any trade-off using the framework it applied following the referendum."
After the referendum result the Bank cut interest rates and increased the amount of financial stimulus it provided to businesses.
Senior sources have made clear that while interest rates cuts are not at present on the agenda, the speed with which any interest rate rises are brought in could be slowed if the negotiations with the EU do not progress as hoped.
The same sources also said that the Bank was ready for any eventuality and did not believe that a "sharp Brexit" was the most likely outcome.
Progress via an implementation period was still probable and if it was agreed that could lead to a sharp pick up business confidence, for example.
Mr Carney said: "The MPC has repeatedly emphasised that monetary policy cannot prevent either the necessary real adjustment as the UK moves to its new trading arrangements or the weaker real income growth likely to accompany that adjustment."

Thursday, May 24, 2018

Bloomberg News - Trump Pushes the World Right Into Putin’s Hands

Leaders from France to Japan open up to the Russian president as the U.S. goes its own way.

The more U.S. President Donald Trump strains the alliances that have sustained the post-Cold War order, the more indispensable Russian President Vladimir Putin seems to become.
By the end of Putin’s annual investment showcase that kicks off in his native St. Petersburg on Thursday, the leaders of four of the world’s 10 largest economies—Japan, Germany, France and India—will have flown into Russia for separate talks with the Kremlin boss within the course of a week. Putin will also host a new point man for foreign policy in China, Vice President Wang Qishan, and International Monetary Fund Director Christine Lagarde.
The highlight of the summits, Russian officials say, will be Putin’s meeting with French President Emmanuel Macron, the forum’s guest of honor along with Shinzo Abe of Japan. After years of sanctions over Ukraine, which Macron backs, and escalating U.S. penalties over alleged election meddling, Trump provided Putin an opportunity for rapprochement with Europe this month by pulling out of the Iran nuclear deal, angering other world powers.
“Russia is one of the main beneficiaries of Trump’s decision on Iran,” said Cliff Kupchan, chairman of Eurasia Group, a New York-based research firm. “Putin senses an opportunity to split the West and escape from pariah status.”
Putin, re-elected by a landslide in March, can boast of modest growth again after collapsing oil prices and sanctions imposed after the annexation of Crimea in 2014 triggered the longest recession of his 18-year rule. But converting geopolitical clout into badly needed foreign investment is a tough sell after the U.S. slapped unprecedented penalties on one of Russia’s largest employers, Rusal, severing billionaire Oleg Deripaska’s aluminum giant from global markets and hammering local stocks.
Trump and Putin in Danang, Vietnam on Nov. 11, 2017. 
Photographer:  Mikhail Klimentyev/AFP via Getty Images

Gone are the days when growth prospects for the world’s largest energy supplier lured corporate titans like Rex Tillerson, Jamie Dimon and Lloyd Blankfein to the St. Petersburg International Economic Forum. This year’s program features only a couple of heads of publicly traded U.S. companies despite Trump’s newly arrived ambassador to Russia, Jon Huntsman, breaking with his predecessor by encouraging attendance.
While Russia’s economy expanded 1.3 percent in the first three months from a year earlier, the reading missed projections for the third straight quarter. The World Bank expects output to rise less than 2 percent a year until at least 2020, far below the level Putin needs to meet his goal of turning Russia into a top five economy by the middle of the next decade and bolstering stagnant living standards.
“Russia presents an interesting philosophical dilemma for investors,” said Tim Ash, senior emerging-market strategist at BlueBay Asset Management LLP in London. “The macro ratios—low debt, low deficit, current-account surplus—scream ‘buy,’ but nobody knows who or what will be sanctioned next.”
The Kremlin was relieved that Macron, a 40-year-old former investment banker who was born just as Putin, 65, was starting his KGB career, resisted pressure from allies to cancel his trip after Britain blamed Russia for the nerve-gas attack on a turncoat spy in England in March.
The accusation led to tit-for-tat diplomatic expulsions across Europe and beyond, but those concerns have been overtaken by the Iran deal, which France, Germany, Russia and China are trying to salvage in the face of U.S. threats to ratchet up sanctions on Tehran and any companies that defy them.
Macron and Chancellor Angela Merkel, who flew to Putin’s summer residence on the Black Sea for talks last Friday, appear to be in lockstep on Russia. Macron told a French newspaper he wants “a strategic and historic dialogue” with Putin to tie Russia to Europe, while a senior German official said detente with Russia is now a core policy objective. The two countries are the largest sources of direct investment in Russia excluding tax-friendly havens like Cyprus.
Even as the European leaders remain at odds with Putin over Ukraine, Syria and other issues, the Iran crisis is pushing them closer together. At the same time, Merkel’s ties with Trump are deteriorating, with the U.S. now threatening to punish German companies involved in building a new pipeline for Russian gas under the Baltic Sea.
“In spite of everything that Russia does, Merkel has an interest in keeping that dialogue open,” said Josef Janning, head of the Berlin office of the European Council on Foreign Relations. And the more the trans-Atlantic relationship frays, the stronger her reaction will be, he said.
Putin, who hosted Narenda Modi of India, a major buyer of Russian arms, in Sochi on Monday, will anchor the forum’s plenary session on Friday, flanked by Japan’s Abe, Macron, China’s Wang and the IMF’s Lagarde.
Abe, 63, has been on a charm offensive trying to get Putin to strike a deal on a territorial dispute that’s prevented the two countries from formally ending World War II. He’s been stymied by Russian intransigence despite offering concessions and encouraging investment in the Pacific neighbor.
“The likelihood is that Abe will return disappointed,” said James Brown, an expert in Russo-Japanese relations at Temple University in Tokyo.
As for Wang, the St. Petersburg visit will be his first trip abroad since assuming foreign policy duties. Putin and Wang’s boss, President Xi Jinping, will meet in China early next month at the annual summit of the Shanghai Cooperation Organization, a security pact the two countries created with four former Soviet republics in 2001. India and Pakistan, arch rivals, joined last year.
But it’s Europe—and specifically Macron—that’s the focus of Putin’s attention this week. With no sign of Russia easing its involvement in Ukraine or support for Syrian leader Bashar al-Assad, nobody expects sanctions relief anytime soon, but Trump’s unilateral withdrawal from the Iran pact gives Putin an unexpected diplomatic opening.
And with Italy’s incoming populist government certain to block any new European Union sanctions and perhaps even trigger an easing, there’s suddenly a more “constructive atmosphere” for Russia in Europe, said Christopher Granville of London-based consultancy TS Lombard.
As a result, Putin will be able to tout this year’s forum as a success just by sharing the stage with the most high-profile attendees since Merkel headlined the event five years ago, according to Andrei Kortunov, who runs the Russian International Affairs Council, a Kremlin-founded think tank.
“It’s an important symbolic event that punctures efforts to isolate Russia,” Kortunov said.
— With assistance by Ilya Arkhipov, Patrick Donahue, Samuel Dodge, Gregory Viscusi, and Hayley Warren.

Wednesday, May 23, 2018

Reuters News - Small banks trump Wall Street on Dodd-Frank rewrite

by Michelle Price, Peter Schroeder

WASHINGTON (Reuters) - Congress on Tuesday rolled back some of the restraints imposed on banks after the 2007-2009 global financial crisis, but big players like Goldman Sachs Group Inc (GS.N), Morgan Stanley (MS.N) and JPMorgan Chase & Co (JPM.N), will not be breaking out the champagne.

While Wall Street banks lobbied hard for a range of provisions that would have weakened the 2010 Dodd-Frank reform law and boosted their profits, they got trumped by their smaller rivals, according to lobbyists, Congressional staff, bankers and disclosure records.
For example, the bill reduces federal oversight of banks between $50 billion and $250 billion in assets, and eases lending, capital and trading rules for smaller lenders, but big bank lobbyists and analysts agree it does little to help the nation’s largest lenders.
Large banks sought to raise that oversight threshold to $500 billion, or adopt a more flexible approach to big bank scrutiny, but small banks fought to fix the cap at $250 billion, concerned about alienating Democrats whose votes were needed to pass the bill in the Senate.
“We fought anything that would be added to the bill for the mega banks that would jeopardize the effort,” said Paul Merski, executive vice president at the Independent Community Bankers of America (ICBA), the main small bank lobby group, whose members have around $430 million in assets on average.
“We managed to get this legislation done in spite of the mega banks.”
Tuesday’s vote marks a major bipartisan legislative victory for President Donald Trump’s administration, which has promised to spur more economic growth by rolling back regulations.


But while Trump-appointed regulators have been cutting Wall Street some slack in how they apply the rules, the rewrite showed how small banks outmaneuvered their big rivals on Capitol Hill, where Wall Street is still struggling to shake off its negative image.
One such accomplishment was the change in the bill that eased capital, lending and trading rules based on asset-size limits, rather than by firm type or activities, making it tougher for big banks to sneak in under the radar. In many cases this was set at $10 billion.
Dodd-Frank aimed to protect consumers from predatory lenders and mitigate systemic risk, but banks of all sizes have argued its burdens were excessive and have lobbied to reform the law.
Yet since the crisis, small banks have fought aggressively to distance themselves from the “too-big-to-fail” Wall Street titans bailed out to the tune of $700 billion in 2008.
This tension has sometimes spilled into public view, with JP Morgan Chief Executive Jamie Dimon calling Camden Fine, who retired from his longtime role as ICBA chief this month, a “jerk” during a 2016 TV interview.
Banks’ lobbying gained momentum after Republicans took control of Congress and the White House in 2016, but it was community banks which were able to wage a grassroots campaign to win over skeptical Democrats and secure their votes.
Armed with government data that showed the number of community lenders fell from around 8,400 in 2007 to around 5,500 today, they targeted moderates in states with many small banks but ideally no big players.
“This bill was perfectly crafted to allow greater flexibility for small community banks and credit it is purposeful that this bill does not include provisions for the largest banks,” North Dakota’s Senator Heidi Heitkamp, a key sponsor of the bill, told Reuters on Tuesday.
“The highest priorities for the largest institutions are nowhere to be found,” said Heitkamp, adding she had not committed to further easing of capital markets rules sought by banks.
Many of the Democratic backers, including Heitkamp, Montana’s Jon Tester and Indiana’s Joe Donnelly, are facing tough mid-term races in which pro-growth credentials and endorsements from small businesses could help swing votes, said analysts.
The Montana Bankers Association recently fielded its members to star in a commercial urging watchers to vote for Tester because he put politics aside “to cut red tape”.
“We wrote this bill to defend Montana businesses from overreaching government regulations,” Tester said in a statement on Tuesday evening.
Donnelly’s office recognized the support of the ICBA among a raft of other local business groups and said the bill “maintains the key elements of Dodd-Frank”.
Congress has not handed the small banks everything they asked for. For example, a farm bill including measures helpful to small banks was voted down by the House this month.
Many Democrats and consumer advocates, including Senators Elizabeth Warren and Sherrod Brown, also say the bill’s provisions on custody banks and bonds could be exploited by the big banks, potentially increasing systemic risk.
Still, big bank lobbyists privately say the Dodd-Frank rewrite, though a positive signal, did not go far enough.
Among the changes Wall Street banks sought, but did not get were: anointing a single regulator to oversee the Volcker Rule banning proprietary trading; weakening the top U.S. consumer watchdog; loosening liquidity rules and requirements for “living wills.”
“Banks of all sizes have spent eight years explaining to lawmakers and regulators why the rules put in place by Dodd-Frank were not all working as intended,” Ian McKendry, a spokesman for the American Bankers Association, which represents banks big and small, said in a statement.
“We think this is an important step forward, but there is more to do.”
Reporting by Michelle Price and Pete Schroeder; additional reporting by Katanga Johnson; Editing by Tomasz Janowski and Lisa Shumaker

Tuesday, May 22, 2018

BBC News - US and China halt imposing import tariffs

China television factoryImage copyrightGETTY IMAGES
Image captionChina's exports to the US far outweigh what it imports
China and the US say they will halt imposing punitive import tariffs, putting a possible trade war "on hold".
The deal came after talks in the US aimed at persuading China to buy $200bn (£148bn) of US goods and services and thereby reduce the trade imbalance.
US Treasury Secretary Steven Mnuchin did not give figures, but said the US would impose tariffs worth $150bn if China did not implement the agreement.
He said dialogue was the way to resolve such issues and "treat them calmly" in the future.

How did the prospect of a trade war come so close?

The US has a $335bn annual trade deficit with Beijing.
Before being elected, President Donald Trump had spoken of China "raping" the US, and promised to label it a currency manipulator on his first day in office.
This did not happen, but he ordered a review of the trade imbalance last August. It found a range of "unfair" practices in China, including restrictions on foreign ownership that pressured foreign companies into transferring technology, unfair terms on US companies, Chinese investments in US strategic industries and Chinese cyber-attacks.
In March this year, Mr Trump announced plans to impose tariffs on Chinese imports - mainly steel and aluminium.
Beijing threatened equal retaliation, including tariffs on a number of US imports - among them aircraft, soybeans, cars, pork, wine, fruit and nuts.

Is that threat now over?

Two days of talks ended in Washington DC on Friday with a framework agreement.
Mr Mnuchin told Fox News Sunday that China would buy more US goods "to substantially reduce the trade deficit".
Concrete numbers had been agreed, he said, although he refused to disclose if this meant China was buying $200bn in return for the US threat to be lifted. US Commerce Secretary Wilbur Ross would travel to China soon, he said, to work on details, which would involve industries - not just the two governments.
"We are putting the trade war on hold. Right now we have agreed to put the tariffs on hold while we try to execute the framework" of the agreement, Mr Mnuchin said.
But he warned that failure to implement it would result in the imposition of the threatened US tariffs.

Is China happy, too?

The Chinese vice-premier Mr Liu said his visit to the US had been "positive, pragmatic, constructive and productive".
US trade in goods with ChinaImage copyrightGETTY IMAGES
Presentational white space
He described a "healthy development of China-US economic and trade relations" which would result in enhanced co-operation in areas such as energy, agriculture products, healthcare, high-tech products and finance.
"Such co-operation is a win-win choice as it can promote the high-quality development of the Chinese economy, meet the people's needs, and contribute to the US effort to reduce its trade deficit," he added.
Mr Mnuchin said the new framework agreement included structural changes to Chinese economy to enable fair competition for US companies, but this would take time, China's vice-premier said.
And, perhaps because of that, he said the two countries "should properly handle their differences through dialogue and treat them calmly in the future".