Monday, January 21, 2019

Bloomberg News - It's Election Year in South Africa But Traders Aren't Panicking

By Colleen Goko
With about four months to go before South Africa’s election, traders are holding their nerve.
Six-month implied volatility for the rand versus the dollar has declined 155 basis points since the start of the year as investors increasingly price in a comfortable victory for the ruling African National Congress. The vote will be in May, though an exact date hasn’t yet been set.
Expected price swings have been lower than actual volatility since September, and the gap widened since the beginning of 2019. That suggests traders are anticipating fluctuations to moderate further over coming months.
“Perhaps this reflects market expectations that political uncertainty will diminish and that the Ramaphosa administration will be able to focus on making significant progress on economic reforms,” said Piotr Matys, a London-based emerging-markets currency strategist at Rabobank. “But the market will be sensitive to any new proposals that could be potentially revealed ahead of elections that could lead to a higher budget deficit or would be interpreted as fading commitment to consolidate public finances.”

Friday, January 18, 2019

BBC News - Housing market outlook worst 'for 20 years'

by Simon Read
For sale signImage copyrightGETTY IMAGES
The housing market outlook over the next three months is the worst for 20 years, surveyors say.
A net balance of 28% of Royal Institution of Chartered Surveyors (RICS) members expect sales to fall in the next three months.
It's the most downbeat reading since records started in October 1998 and the pessimism is blamed on the lack of clarity around Brexit.
Lack of supply and affordability also continued to affect the market.
Sales expectations for the next three months are now either flat, with no change predicted, or negative, indicating falling sales, across all parts of the UK, the report said.
Increasing numbers of surveyors reported seeing house prices fall rather than increase in December, with a net balance of 19% seeing falls rather than rises.
That was up from a balance of 11% in November and marked the fourth month in a row of negative house price readings.
New buyer inquiries fell for the fifth month in a row in December.
The drop-off in interest from buyers was matched by a decline in fresh properties coming on to the market.
The supply of new properties has been dwindling for six months, said Simon Rubinsohn, RICS chief economist.
"It is hardly a surprise with ongoing uncertainty about the path to Brexit dominating the news agenda, that even allowing for the normal patterns around the Christmas holidays, buyer interest in purchasing property in December was subdued.
"This is also very clearly reflected in a worsening trend in near-term sales expectations."
Presentational grey line

'Noticeably quiet'

David KnightsImage copyrightDAVID KNIGHTS
"We experienced a slowing down in the local property market from last summer onwards with a lot of it down to the Brexit unknowns," said estate agent David Knights of David Brown & Co of Ipswich.
"Uncertainty causes people to sit on their hands."
He says that activity in November and December is generally about 50% of that seen during the rest of the year, but that the last two months of 2018 "were noticeably more quiet" because of that uncertainty.
In the short-term, over the next three to four months, he expects the property market to continue to be subdued.
"When buyers don't know what's going to happen you can understand them being careful about how much they're prepared to offer."
But he remains positive about the property market over the slightly longer term.
"We're not going to see an instant rebound once Brexit is out of the way, but I think we'll see progression over the year," he said.
"There are really no signs that we are going have similar problems that we experienced in 2007 and 2008."
Presentational grey line

Muted housing activity

Average UK house price graph
The latest official figures from the Office for National Statistics (ONS) and Land Registry published earlier in the week suggested housing activity was muted because of Brexit uncertainty.
It said the average UK house price was £230,630 in October, falling by 0.1% month-on-month.
Looking further ahead, estate agents are a little more hopeful of their sales expectations for 12 months' time.
"Looking a little further out, there is some comfort provided by the suggestion that transactions nationally should stabilise as some of the fog lifts, but that moment feels a way off for many respondents to the survey," said Mr Rubinsohn.
"Meanwhile, it is hard to see developers stepping up the supply pipeline in this environment."
He said that to get near to government building targets would "require significantly greater input from other delivery channels, including local authorities".

Thursday, January 17, 2019

Reuters News - Stocks turn red, pound finds some peace

by Marc Jones
LONDON (Reuters) - Concern over China’s economic outlook and possible U.S. tariffs on European cars dragged stocks lower on Thursday, while an anti-climactic end to the latest chapter in the Brexit saga offered sterling a moment’s peace.

Fresh news was thin as European trading got underway, but traders had more than enough to digest from last 24 hours to follow Asia’s overnight dip into the red.
Carmakers fell more than 1.5 percent after U.S. Senate Finance Committee Chairman Charles Grassley said he thought Donald Trump was inclined to impose tariffs on European cars to win better terms on agriculture.
Banks were hit by disappointing Societe Generale results and the tech sector was under pressure after one of world’s biggest chip producers, Taiwan Semiconductor (2330.TW), forecast its steepest drop in revenue in a decade.
“There is some focus on the Grassley comments in relation to auto trade tariffs and also reference to there not being much progress in the U.S. China negotiations last week,” said Bank of Tokyo Mitsubishi strategist Derek Halpenny.
“There has obviously there has been a lot of optimism (in markets) since the start of the year and risk appetite has had a pretty good run, but this will place a few question marks over that.”
MSCI’s broadest index of world stocks was down 0.1 percent. Markets like Japan had dithered in both directions, while Wall Street’s S&P 500 futures drifted down 0.26 percent.
China's blue-chip index .CSI300 ended down 0.55, led lower by a decline in the country's second-largest home appliances maker, Gree Electric, after it warned of slower profit growth as the economy loses steam.
Chinese Premier Li Keqiang promised increased government investment this year and the country’s central bank injected more cash into the financial system, bringing the amount for the week to 1.14 trillion yuan ($168.74 billion).
Stoking some caution was news that U.S. lawmakers introduced bills on Wednesday that would ban the sale of U.S. chips or other components to Huawei Technologies Co Ltd or other Chinese telecommunications companies that violate U.S. sanctions or export control laws.
That came shortly before the Wall Street Journal reported federal prosecutors were investigating allegations that Huawei stole trade secrets from U.S. businesses.
Separately, Handelsblatt reported the German government is actively considering stricter security requirements and other ways to exclude Huawei from a buildout of fifth-generation (5G) mobile networks.
Also lurking were worries the U.S. government shutdown was starting to take a toll on its economy. White House economic adviser Kevin Hassett said the shutdown would shave 0.13 percent off quarterly economic growth for each week it goes on.

PLAN B OR NOT PLAN B

As expected, British Prime Minister Theresa May narrowly won a confidence vote overnight and invited other party leaders for talks to try to break the impasse on a Brexit agreement.
An outline for Plan B is due by next Monday. Markets assume the exit date will be extended past March 29.
“Nothing has happened in the last 24 hours to dissuade us from the view that we are headed in the direction of an Article 50 delay, a softer Brexit or no Brexit,” said Ray Attrill, head of FX strategy at NAB.
All of which left the pound steady at $1.2872, though still short of Monday’s peak at $1.2929. It reached a seven-week low against the euro before steadying at 88.50 pence.
The U.S. dollar was mixed, easing against the yen to 108.79 but flat versus the euro at $1.1396. The dollar index was up at 96.088.
In commodity markets, palladium hit record highs thanks to increasing demand and lower supply. Spot gold was little changed at $1,294.91 per ounce.
Oil prices eased as traders worried about the strength of demand in the United States after its gasoline stockpiles grew last week more than analysts had expected.
U.S. crude futures fell 38 cents to $51.93 per barrel. Brent slipped 40 cents to $60.92.
Additional reporting by Wayne Cole in Sydney, editing by Larry King

Wednesday, January 16, 2019

BBC News - Turkey: Could the US damage its economy?

By Reality Check
Turkish foreign minister on left, quote "You cannot get anywhere by threatening Turkey economically"
President Trump has said the US will "devastate Turkey economically" if Ankara decides to attack Kurdish groups in Syria.
Mr Trump was referring to his plan to pull US forces out of Syria, where they have been fighting alongside a Kurdish militia against the Islamic State (IS) group.
Turkey regards the Kurdish group as terrorists.
The US president's comments drew a sharp response from Turkey, which said Mr Trump would not get anywhere by threatening the country economically.
After Mr Trump's tweet, the Turkish lira dropped in value against the US dollar.
It then recovered its value, suggesting that his remarks had limited impact.
So how could the US damage Turkey economically - if it wanted to?

Close ties under strain

The relationship between Washington and Ankara has historically been close - politically, economically and militarily.
Turkey - a Nato member - is a vital partner for the US but there have been significant strains in the partnership.
These came out into the open last August, when the US slapped sanctions on Turkey over the continued detention of American pastor Andrew Brunson.
It marked a new low in relations and was a further blow to an already fragile economy.
The US also doubled tariffs on Turkish steel and aluminium that month,leading to further falls in the value of the Turkish lira - some 40% since the beginning of 2018.
Turkey responded in kind, raising tariffs on cars from the US to 120%, on alcoholic drinks to 140% and on leaf tobacco to 60%.

Who does Turkey trade with?

In fact, only 5% of Turkish exports head to the US and Turkey imports only slightly more from there.
Turkey's trading relationships with China, Russia and Germany are more important.
Chart of trading partners
But even though overall trade with US is not as large, there are key vulnerable sectors: air transport, iron and steel and machinery - and this is where the US has chosen to target previous sanctions.
Turkey has historically had a deficit in international trade, in that it imports more from the rest of the world than it exports.
However, the trade gap did narrow considerably in 2018 on the back of the weakness of the lira, which made Turkey's exports more competitive and imports more expensive.

Economic vulnerabilities

Turkey may be vulnerable over its high levels of debt.
As of the end of September 2018, its external debt amounted to over 50% of its gross domestic product (GDP) - the value of all the goods and services it produces in a year - according to official figures.
"This is Turkey's Achilles heel," says York University economist Gulcin Ozkan.
"It puts the country at the mercy of international investors and makes it vulnerable to exchange rate movements."
There are two features of Turkey's foreign debt increase that are concerning.
2018 inflation chart
It has a relatively high level of short-term debt, which is due for repayment in the near future.
That means having a greater reliance on external finance.
In addition, most of its overall debt is in foreign currencies such as the US dollar and the euro.
So, the debt becomes more expensive as the Turkish currency loses value and other currencies - such as the US dollar - strengthen.
In fact, the lira had been struggling for most of last year, recording its worst decline since 2001.
This currency weakness also aggravates Turkey's persistent inflation problem, which at one point in 2018 peaked at over 25%.

Market sentiment is key

It's important to point out that the Turkish economy has been growing strongly for most of the period since 2001.
But confidence in Turkey was beginning to wane last year over concerns that the economy was overheating due to huge spending and borrowing.
In addition, the Turkish government has taken away some power from the central bank, leading investors to worry about the direction of fiscal policy.
So any fallout with the US could further sour the financial markets' view of the health of the Turkish economy.
"This could lead to a decline in capital inflows and impact the value of the Turkish currency," says economist Gulcin Ozkan.
Hangar at IncirlikImage copyrightGETTY IMAGES
Image captionTurkey's Incirlik base is vital for US operations in the region

Weakening a strategic ally

But given the importance of the political and strategic relationship with Turkey, which shares borders with Syria, Iraq and Iran, the US may want to tread carefully.
Turkey is the biggest recipient of US defence equipment after Israel and the UAE and the vast majority of its air force is US supplied.
It also hosts US and Nato forces at its Incirlik airbase, in the south of the country.
So Turkey may be economically vulnerable but politically and strategically it remains very important.

Tuesday, January 15, 2019

BBC News - Brexit: 'Basic questions unanswered' on Swiss trade deal


Flag of SwitzerlandImage copyrightSAHACHAT
Ministers must clarify the UK's post-Brexit relationship with Switzerland and up to 70 non-EU countries, a Commons committee chairman has said.
SNP MP Angus MacNeil said the "most basic questions" about the relationship remained unanswered.
The deal matches current arrangements "as far as possible", ministers say.
Mr MacNeil, chairman of the international trade committee, raises the prospect that the freedom of movement of people - which is currently a condition of the deal between the EU and Switzerland - would have to be accepted by the UK.
He is also seeking clarification on what aspect of the current relationship with Switzerland are replicated and whether the agreement will allow UK-based firms to continue trading into Switzerland on the "same basis as they do today".
The UK is due to leave the EU on 29 March. A crunch vote in the Commons on the prime minister's withdrawal deal takes place on Tuesday.
Last month, the government announced that it had approved the transition of a trade agreement with the Swiss Federal Council that will come into effect in January 2021 or on 29 March this year if the UK leaves the EU with no deal.
Switzerland is not a member of the EU but is part of the bloc's single market.

Analysis

By Joe Miller, BBC business correspondent
Member states of the European Union don't just benefit from trading freely among themselves. Over the years, Brussels has negotiated almost 40 agreements with dozens of countries around the world, including Mexico and South Korea, to bring down tariffs and reduce regulatory barriers - making it easier for goods and services to cross borders.
The UK currently trades using those agreements, and last year, Mr Fox told the BBC that he hoped Britain would replicate all of those agreements after Brexit, and that 70 countries had already agreed to do so, in principle.
In December, Mr Fox told parliament of his first triumph - an approved deal with Switzerland.
But few details of that deal have been provided, and the chairman of the international trade committee's concern over the accord points to a larger problem.
All 39-odd agreements need to pass through parliament - and if they are to be ready for a possible no-deal Brexit on 29 March, that leaves just 11 weeks to avoid disruption to much of British business.
Presentational grey line
In a letter to Mr Fox, Mr MacNeil called for clarification on the UK's future trade relationship with Switzerland.
Commenting on his letter, Mr MacNeil said: "Switzerland's access to the single market requires it to accept both freedom of movement and a significant proportion of EU law.
"It is based not only on a trade agreement eliminating tariffs, but also on a myriad of other trade-related agreements.
"Blithe assurances of progress will simply not suffice as the clock ticks down to Brexit on 29 March."
Mr MacNeil added that the government was running out of time to adopt the "other 39 or so existing EU trade agreements"
A Department for International Trade spokeswoman said: "The UK government and the Swiss Federal Council have approved the transition of a trade agreement that replicates the existing EU-Switzerland arrangements as far as possible.
"This will allow businesses to continue trading freely after the UK leaves the European Union."

Monday, January 14, 2019

Reuters News - China's exports shrink most in two years, raising risks to global economy

BEIJING (Reuters) - China’s exports unexpectedly fell the most in two years in December, while imports also contracted, pointing to further weakness in the world’s second-largest economy in 2019 and deteriorating global demand.

Adding to policymakers’ worries, data on Monday also showed China posted its biggest trade surplus with the United States on record in 2018, which could prompt President Donald Trump to turn up the heat on Beijing in their bitter trade dispute.
Softening demand in China is being felt around the world, with slowing sales of goods from iPhones to automobiles, prompting warnings from the likes of Apple and from Jaguar Land Rover, which last week announced sweeping job cuts.
The dismal December trade readings suggest China’s economy may have cooled faster than expected late in the year, despite a slew of growth-boosting measures in recent months ranging from higher infrastructure spending to tax cuts.
Some analysts had already speculated that Beijing may have to speed up and intensify its policy easing and stimulus measures this year after factory activity shrank in December.
China’s December exports unexpectedly fell 4.4 percent from a year earlier, with demand in most of its major markets weakening. Imports also saw a shock drop, falling 7.6 percent in their biggest decline since July 2016.
Analysts had expected export growth to slow to 3 percent with imports up 5 percent.
“Today’s data reflect an end to export front-loading and the start of payback effects, while the global slowdown could also weigh on China’s exports,” Nomura economists wrote in a note, referring to a surge in shipments to the U.S. over much of last year as companies rushed to beat further tariffs.
“The export growth print also suggests that the recent strength of the yuan might be short-lived; Beijing will perhaps be more eager to strike a trade deal with the U.S.; and that policymakers will need to take more aggressive measures to stabilize GDP growth.”
Net exports had already been a drag on China’s economic growth in the first three quarters of last year, after giving it a boost in 2017.
Asian shares and U.S. stock market futures fell as the surprisingly weak Chinese data added to fears of weaker corporate profits and investment, while the yuan currency gave up some of its early gains.[MKTS/GLOB]

HIGHER TRADE SURPLUS WITH U.S.

China’s politically-sensitive surplus with the U.S. widened by 17.2 percent to $323.32 billion last year, the highest on record going back to 2006, according to Reuters calculations based on customs data.
China’s large trade surplus with the United States has long been a sore point with Washington, which has demanded Beijing take steps to sharply reduce it.
Washington imposed import tariffs on hundreds of billions of dollars of Chinese goods last year and has threatened further action if Beijing does not change its practices on issues ranging from industrial subsidies to intellectual property. China has retaliated with tariffs of its own.
However, Beijing’s export data had been surprisingly resilient to tariffs for much of 2018, possibly because companies ramped up shipments before broader and stiffer U.S. duties went into effect.
As many market watchers predicted, that boost has faded in the last few months. China exports to the U.S. declined 3.5 percent in December while its imports from the U.S. were down 35.8 percent for the month.
China’s total global exports rose 9.9 percent in 2018, its strongest performance in seven years, while imports increased 15.8 percent.
But December’s gloomy data, along with several months of falling factory orders, suggest a further weakening in its exports in the near term.
“A trade recession is likely, in our view,” Raymond Yeung, chief economist at ANZ, said in a note, predicting a period of export contraction similar to 2015-16.
“The global electronics cycle remains the key driver of Chinese exports. A potential downturn in the sector poses the real risk to China’s external outlook even if China and the U.S. reach a resolution on their trade dispute.”
ING said a fall in electronic shipments could be related to foreign companies avoiding using China-made electronic components, adding that exports and imports of electronic parts and goods will likely shrink this year.

WEAK IMPORTS HIGHLIGHT SOFTENING DEMAND

The higher tariffs China levied on U.S. supplies also hit overall import growth. For all of 2018, soybeans, the second largest imports from the U.S., fell for the first time since 2011.
Even if Washington and Beijing reach a trade deal in their current round of talks, it would be no panacea for China’s slowing economy, analysts say.
“The import slowdown is consistent with other signs that growth in China’s domestic economy continued to weaken,” said Louis Kuijs, head of Asia economics at Oxford Economics.
“Overall economic growth slowed further in the fourth quarter and remains under pressure from weaker exports, slow credit growth and cooling real estate activity.”
Chinese policymakers are widely expected to roll out more support measures in coming months if domestic and external conditions continue to deteriorate.
Early this month, the central bank said it would slash banks’ reserve requirements — the fifth such cut in a year — as it tries to encourage more lending and reduce the risk of a sharp slowdown.
“If pressure on the economy is still relatively large in the first half, a cut every quarter should be highly likely,” said Xu Gao, chief economist at Everbright Securities.
In an annual meeting of top leaders last month, China said it will boost support for the economy in 2019 by cutting taxes and stepping up policy adjustments.
A few analysts believe interest rate cuts are a possibility, but most expect Beijing will refrain from massive stimulus measures like those deployed in the past, due to worries that it could add to a mountain of debt and weaken the yuan.
Sources told Reuters last week that Beijing is planning to lower its economic growth target to 6-6.5 percent this year after an expected 6.6 percent in 2018, the slowest pace in 28 years.
Reporting by Yawen Chen, Stella Qiu, Lusha Zhang and Martin Pollard; Editing by Kim Coghill