BBC News - Swiss central bank makes 50bn Swiss franc loss

The soaring value of the Swiss franc against the euro has led Switzerland's central bank to report a first half loss of 50bn francs (£33bn).

The bank, which is owned by the Swiss federal government, said the loss could affect its ability to pay a dividend this year.

Those dividends are traditionally used to pay for public services.

Switzerland shocked markets in January when it abandoned its four-year currency peg to the euro.

The move saw the Swiss franc skyrocket in value as investors piled into the currency over fears of a renewed eurozone debt crisis despite the imminent onset of quantitative easing by the European Central Bank (ECB).

Peg

The continued strength of the Swiss franc is hurting exports from the country which are down 2.6% this year. The tourism industry has also reported fewer visitors and retailers are also struggling.

The first-half loss was almost entirely - 47.2bn francs - the result of losses on foreign exchange positions, which occurred in the weeks that immediately follow the bank's decision to remove the currency peg against the euro.

Since ending the 1.20 francs per euro cap, the Swiss National Bank (SNB) has intervened in the currency market by buying euros to weaken the franc, which currently hovers at around 1.06 francs per euro.

'Fluctuations'

The bank, which also has several private shareholders, warned that its full-year results would rely heavily on developments in the gold, foreign exchange and broader financial markets.

"Strong fluctuations are therefore to be expected, and only provisional conclusions are possible as regards the annual result," the central bank said in a statement.

The SNB said euro-denominated assets made up 42% of its investment portfolio at the end of June, unchanged from the end of March, and 32% was held in US dollars, also unchanged.

Peter Hegglin, the head of Switzerland's 26 canton finance directors, said he was "not going to assume" that the first half loss would mean the SNB would not be paying a full year dividend, suggesting the bank could still reverse its fortunes.

Reuters News - Chinese banks investigating exposure to stock market: China Sec Journal

An investor checks on his mobile phone in front of an electronic board showing stock information at a brokerage house in Hangzhou, Zhejiang province, China, July 29, 2015.

REUTERS/STRINGER

Chinese banks have been investigating their exposure to the stock market from wealth management products and loans collateralized with stocks, the China Securities Journal reported on Thursday, citing unidentified bank officials.

The report did not identify any banks by name, but said that many banks had been ordered by their headquarters to conduct the checks.

One bank executive told the newspaper that the lender's headquarters had launched the investigation in late June.

Banks have been a major source of funding in the grey market of margin financing - a network that also includes trust companies, asset managers and loosely regulated grassroots finance firms.

While the business has generated profits for lenders, the stock market tumble since mid-June may have put their money at risk.

At a mid-sized commercial bank, for example, business related to the stock market totaled 151.8 billion yuan at the end of June. As of July 3, more than 500 of the lender's stock-related products had touched early warning lines, according to the newspaper.

Banks have also started collecting detailed information regarding loans collateralized with stocks, including the type of shares that are being used as collateral, the collateral ratio, and measures taken when prices of those stocks slump, the article said.

Bank and other loans backed by listed shares officially jumped around 260 percent in May to 58.4 billion yuan ($9.4 billion) from a year earlier, representing about 4.8 percent of total social financing for the period.

(Reporting by Samuel Shen and Pete Sweeney; Editing by Neil Fullick)

Bloomberg News - Alarm Bell Rings in Tokyo at Rapid Rise in German Exports to China

Angela Merkel, Germany's Chancellor, left, speaks as Shinzo Abe, Japan's prime minister, looks on during a news conference in Tokyo, Japan, on Monday, March 9, 2015.

 

Photographer: Kiyoshi Ota

As if Japan didn't have enough economic problems to overcome, officials in Tokyo have identified another worrying trend: lagging export growth to China. 

Rapid gains in German shipments to China have caught their attention, with exports from the European powerhouse doubling in value since 2008 and reaching 74.5 billion euros ($82.5 billion) last year. 

Japanese sales to China, the nation's biggest trading partner, crept up by just 3.3 percent over the same period. Japan still holds a solid lead though, with to 13.4 trillion yen ($109 billion) worth of shipments to China in 2014.

To be sure, part of the weakness in these Japanese export figures is because companies from Toyota Motor Corp to air-conditioner maker Daikin Industries Ltd. have beenbuilding factories in growing markets like China. While the profits from these plants are brought home, it means less industrial production in Japan. 

That's not to say that German companies aren't operating in China too. Heavyweights from Volkswagen AG to Siemens AG also have plants there.

Still, total exports account for about 15 percent of Japan's gross domestic product, compared with around 40 percent for Germany, according to a report by the statistics bureau in Tokyo. 

All this has implications for job creation in the manufacturing sector.

Germany made changes years ago that Japan is only getting to now, such as reducing corporate taxes and increasing flexibility in the labor market, according to Hiromi Oki, chief economist at the Institute for International Trade and Investment in Tokyo.

"Germany pursued structural reforms aggressively rather than being defensive,'' said Oki.

It seems to be paying off. German companies are outperforming Japanese rivals in boosting the volume of exports to China and the prices they charge, on everything from textiles to precision tools, according to a study by Japan's economy and trade ministry.

Currency markets have also had an impact, but there is no clear winner between Japan and Germany on this score. The euro's 25 percent decline since 2008 has no doubt helped Germany exporters, especially as the yen appreciated through 2011 in the wake of the global financial crisis. But the Japanese currency has been on much more rapid downward course since then, having slumped more than 30 percent since Prime Minister Shinzo Abe came to power in December 2012.

by Yoshiaki Nohara

BBC News - Eurozone outlook improves, International Monetary Fund says

The outlook for the eurozone has improved, says the International Monetary Fund (IMF), thanks to a falling oil price, a weaker euro and action taken by the European Central Bank (ECB).

It predicted that growth would pick up to 1.7% next year, from 1.5% this year.

However, the IMF warned that the region was still "vulnerable to shocks".

This could tip the block into "prolonged stagnation," the fund said in its latest assessment of the region.

It cited uncertainty arising from the situation in Greece as a potential trigger for such a shock, saying that further volatility from the situation could not be ruled out.

Greece is currently negotiating its third bailout with creditors.

ECB plan

"Several factors cloud the outlook for growth over the next five years," said the IMF's Mahmood Pradhan.

"These include high unemployment, especially among the youth; large corporate debt; and rising non-performing loans in the banking system.

"A moderate shock to confidence - whether from lower expected future growth or heightened geopolitical tensions - could tip the block into prolonged stagnation," he said,

Inflation would remain near zero in 2015 and rise to 1.1% in 2016, the IMF predicted.

Earlier this year, the ECB launched a €60bn-a-month asset-buying programme in an attempt to stimulate the economy and avoid deflation.

The IMF praised the plan, saying it had boosted confidence and improved financial conditions, and suggested that it should remain in place until September 2016, if not longer.

Analysis: Andrew Walker, BBC economics correspondent

The message from the IMF is that the eurozone has more work to do. And it is not just the obvious calls for reform of the structure of the eurozone and for further work from the countries that have struggled.

There is a call for Germany to do more - not screaming out from the headlines of the report it must be said, but it is there.

The IMF refers to countries with what it calls excessive current account surpluses - which means international trade in goods and services and some financial flows.

It says they should invest more in infrastructure and, less directly, it suggests that they should boost demand. The report names Germany and the Netherlands as countries where these surpluses are continuing to grow.

These imbalances have a wider significance for the eurozone. Having such a surplus means the countries concerned have the capacity to import more from, among others, their eurozone neighbours, who could use any extra help they can get.

Reuters News - China stocks tumble, suffer biggest one-day loss in eight years

An investor looks at an electronic board showing stock information at a brokerage house in Nanjing, Jiangsu province, China, July 24, 2015.

REUTERS/CHINA DAILY

Chinese shares tumbled more than 8 percent on Monday amid renewed fears about the outlook for the world's No. 2 economy, reviving the specter of a full-blown market crash that prompted unprecedented government intervention earlier this month.

Major indexes suffered their largest one-day drop since 2007, shattering a period of relative calm in China's volatile stock markets since Beijing unleashed a barrage of support measures to arrest a slump that began in mid-June.

The CSI300 index .CSI300 of the largest listed companies in Shanghai and Shenzhen plunged 8.6 percent, to 3,818.73, while the Shanghai Composite Index .SSEC lost 8.5 percent, to 3,725.56 points.

While the falls followed lackluster data on profit at Chinese industrial firms on Monday and a disappointing private factory sector survey on Friday, there was little to explain the scale of the sell-off.

Some analysts said fears that China may hold off from further loosening of monetary policy had contributed to souring investor sentiment.

"The recent rebound had been swift and strong, so there's need for a technical correction," said Yang Hai, strategist at Kaiyuan Securities.

He said the trigger was "a sluggish U.S. market amid stronger expectations of a Fed rate rise in the fourth quarter. That, coupled with China's rising pork prices, fuels concerns that China would refrain from loosening monetary policies further."

In late June and early July, Chinese authorities cut interest rates, suspended initial public offerings, relaxed margin-lending and collateral rules and enlisted brokerages to buy stocks, backed by central bank cash, to support share prices.

The battery of stabilization measures followed a peak-to-trough slump of more than 30 percent in China's benchmark indexes, which had more than doubled over the preceding year.

Chinese share markets had recovered around 15 percent since then, before Monday's renewed sell-off.

Stocks fell across the board on Monday, with 2,247 companies falling, leaving only 77 gainers.

Index heavyweights, including China Unicom (600050.SS), Bank of Communications (601328.SS) and PetroChina (600028.SS), slumped by their daily downward limit of 10 percent.

More than 1,500 shares listed in Shanghai and Shenzhen dived by the daily limit.

SHANGHAI | BY SAMUEL SHEN AND PETE SWEENEY

BBC News - Denmark-Germany undersea Fehmarn tunnel gets go-ahead

The tunnel - visualised here - should be open to traffic in 2024 (pic: Femern A/S)

Denmark has got EU approval for a 19km (12-mile) undersea road-rail tunnel that will cut journey times to Germany.

The €8.7bn (£6bn; $9.6bn) Fehmarn Belt project will get €589m of EU funding.

The EU Commission said it complied with EU state aid rules and would boost transport links between central Europe and Scandinavia.

The tunnel will connect the Danish island of Lolland with Germany's Fehmarn island. Construction will start in January, and it should open in 2024.

There will be a four-lane motorway alongside a double-track railway.

The link will provide a fast corridor between Copenhagen and Hamburg. It is expected to slash that rail journey from just under five hours currently to little more than two hours.

The Oresund road-rail bridge already connects Copenhagen with Malmo in southern Sweden.

The EU contribution to the Fehmarn tunnel will come from the Connecting Europe Facility, a scheme for modernising Europe's transport infrastructure.

In a statement on Thursday, the Commission said the new tunnel would be integrated with Denmark's public transport and it was "neither liable to distort competition nor to affect trade between member states".

The tunnel will be built by Denmark's state-owned Femern A/S.

Reuters News - Beijing's stock rescue has $800 billion bark, small market bite

Investors look at computer screens in front of an electronic board showing stock information at a brokerage house in Shanghai, China, in this July 14, 2015 file photo.

REUTERS/ALY SONG/FILES

China has enlisted $800 billion worth of public and private money to prop up its wobbly stock markets, a Reuters analysis shows, but the impact of the unprecedented government-orchestrated rescue has so far been modest.

Public statements, media reports and market data reveal that Beijing unleashed 5 trillion yuan ($805.2 billion) in funds - equivalent to nearly 10 percent of China's GDP in 2014 and greater than the 4 trillion yuan it committed in response to the global financial crisis - to calm a savage share sell-off.

But while the 2008 stimulus package staved off recession, analysts wonder what benefit the stock rescue package can bring to offset the risk the government is buying stocks at valuations private investors are no longer willing to pay.

"I'm quite negative towards the rescue," said Yang Weixiao, analyst at Founder Securities in Beijing.

"The problem is, all these measures only change the supply-demand relationship, without changing the fundamentals. So there's no real support, and the calm could be only temporary. If the governments exits the bailout, prices could accelerate their journey back to fundamentals."

Indeed, there are already some signs the government may be backing off from aggressive share purchases.

A plan to raise 100 billion yuan by China Securities Finance Corp (CSFC), the state-backed institution that provides margin financing, has been delayed, four sources familiar with the matter told Reuters on Monday.

On Thursday the CSFC admitted that it had reduced stakes in some listed companies to bring it below a regulatory threshold, but said it had transferred the shares, not sold them.

Respected private finance magazine Caijing also reported that the CSRC was considering withdrawing money from a stabilization fund, roiling markets before CSRC denied the story.

It's hard to tell how much state money has actually flowed into the market, given the opacity of some of the investing institutions.

But Beijing's policy goal is not to prop up values by buying the stock market outright, but rather to entice private money back to the market, surfing a wave of incoming government money.

"Presumably the whole point is to say that you are going to spend this money, and then by saying it you don't actually have to spend it," said Andrew Batson, an economist at Gavekal Dragonomics in Beijing.

RESCUE PACKAGE

The combined measures, rolled out in a flurry of announcements earlier this month, included a 120 billion yuan stabilization fund created by a core group of brokerages and 1.3 trillion worth of bank loans to state-backed margin finance companies.

Potential inflows created by tweaking investment rules for pension funds amount to 600 billion yuan, while allowing insurers to invest up to 40 percent of their assets in stocks could generate an estimated 2.9 trillion yuan. ((For a table of support measures, click)).

There have also been share buybacks announced by key stakeholders, and funds invested by the state-owned asset manager Central Huijin, plus a double-barreled burst of monetary policy stimulus by the central bank in late June that explicitly targeted stock market stabilization.

But the response has been lukewarm.

While the market stabilized, with the Shanghai Composite Index .SSEC recovering about 20 percent by Thursday's close from a low point around 3,300 points struck on July 8, it is still below the semi-official recovery target of 4,500 points.

Beijing has thus produced the equivalent of around 1 index point gain for every $1 billion committed.

And market stability remains untested given the large numbers of companies still subject to trading halts. Reuters calculations show that around 20 percent of listed companies in Shanghai and Shenzhen are not trading at present, down from around 40 percent before but still extremely high.

An analysis by Everbright Securities of fund flow data showed that while government flows into mutual funds targeted for government intervention rose sharply in recent weeks, private inflows into new stock funds have collapsed.

The other major problem with Beijing's strategy, Batson at Gavekal Dragonomics pointed out, is that many Chinese firms are still trading at stratospheric valuations.

Even after the early-summer meltdown that saw markets shed around a third of their value in a little more than three weeks, the Shanghai Composite Index .SSEC is still up nearly 100 percent from 12 months ago, with an average price-to-earnings ratio of 17.64 - higher than the Dow Jones Industrial average P/E of 16.12.

The average P/E on the Shenzhen stock exchange .SZSA is 47.23, while the small-cap ChiNext growth board .CHINEXTC is a heady 98.07.

"If valuations are mean-reverting over time, which a lot of people think they are, that means that valuations could go down in the future," said Batson. "Which means that whatever buying the government does today could end up imposing a longer-term financial cost."

Though Chinese major stock market indexes rose on Thursday, and are now set to gain for the third consecutive week, futures markets are still pricing at a discount to current values, betting that the CSI300 index will fall back to around 4,000 points by next March.

(Additional reporting by Samuel Shen; Editing by Alex Richardson)

BBC News - Small scale solar energy subsidies set to end

Subsidies for many new solar farms are to end under plans being published by the government.

The Department of Energy and Climate Change (DECC) is consulting on plans that would see subsidies for some new solar farms close by 2016.

The government says the move is necessary to protect consumers.

The solar industry said subsidies were one of the cheapest ways that the government could meet its climate change targets.

Under the government's plans, so called "small scale" solar farms will no longer qualify for support under a key subsidy mechanism - the renewables obligation - from April next year.

New projects that receive the subsidy may also see the level cut.

Energy secretary Amber Rudd said renewable energy subsidies must be cut

'Blank cheque'

Energy Secretary Amber Rudd said: "Our support has driven down the cost of renewable energy significantly.

"As costs continue to fall it becomes easier for parts of the renewables industry to survive without subsidies."

She told the BBC's Today programme: "We can't have a situation where industry has a blank cheque, and that cheque is paid for by people's bills.

"We can't have a system, which we've had up to now, where there is basically unlimited [subsidy] headroom for new renewables, including solar."

She conceded that subsidies to the nuclear industry, such as those planned for Hinkley Point, would exceed those going to solar, but she said that nuclear provided "a different type of electricity".

"In the winter, at the moment, solar doesn't really deliver much electricity," she said.

The government plans also include reducing subsidies for power stations which convert to biomass, and proposals to review feed-in-tariff schemes.

The solar industry says its subsidies add £3 per year to people's bills

'Tiny' subsidy

Small scale solar farms, which are regarded as the cornerstone of the industry, can be up to 25 acres in size and typically power around 1,500 homes.

Supporters argue that the growth of these projects has helped to drive down the cost of solar in recent years.

But the government says the amount of support for renewable energy - which is paid by households through their energy bills - is set to rise in the coming years above agreed levels.

Subsidies for large scale solar farms were cut in January.

The Solar Trade Association (STA) says the industry accounts for just 6% of funds paid out under the renewables obligation.

It insists that support for solar is one of the cheapest ways that the government can meet its climate change targets.

Jonathan Selwyn, a board member of the STA, told the BBC that the subsidy cut would "have a very large impact" on the industry.

"Let's get this straight, in the RO [renewables obligation], which is the solar farm's main support subsidy, it's costing about three pounds per annum on people's energy bills - it's a tiny amount when you compare it with other types of energy, like nuclear for example."

He said government support had been "absolutely instrumental in the industry's success" over the past five years, and that the industry was "tantalisingly close" to being able to operate without any subsidy.

However, he said that investor confidence would inevitably suffer by the consultation.

Mr Selwyn called for "a level playing field" for solar in relation to nuclear energy and fracking, in terms of subsidies and planning regulations.

'Jobs under threat'

The Welsh government said it was concerned about uncertainty caused by the government's plans.

A spokesperson said the plans have the "potential to put jobs and investment under threat by reducing subsidies to projects already in the pipeline".

"Again, it reinforces our call to [the] UK government to devolve all energy powers to Wales to ensure that we maximise the economic potential of renewable energy power generation and benefit communities across Wales."

Solar farms saw "strong growth" in Wales between 2011 and 2015, according to Welsh government figures.

In that period, 23 farms were made operational, and planning permission was granted for 66.

Scotland's Energy Minister Fergus Ewing also highlighted the potential threat to jobs, and said the Scottish government had not been "properly consulted" about the plans.

He said: "There are over 3,000 jobs dependent on this form of renewable energy in Scotland.

"We are concerned because just at the time where the industry has said it's getting to the point where it's able to do without subsidy in the next few years, we're faced with another reduction in support coupled with a lack of clarity on exactly what will be done."

Niall Stuart, chief executive of industry body Scottish Renewables, said: "This change will just erode further investor confidence in the energy sector."

BBC News - Greek debt crisis: 2bn euro arrears repaid to IMF

The International Monetary Fund (IMF) has confirmed that Greece has cleared overdue debt repayments of €2.05bn (£1.4bn) and is no longer in arrears.

The repayments, and another for €4.2bn to the European Central Bank (ECB) due on Monday, came after the EU made Greece a short-term loan of €7bn.

Cash-strapped Greece missed one repayment to the IMF in June and another earlier this month.

Earlier on Monday, Greek banks reopened after being closed for three weeks.

However, many restrictions remain and Greeks are facing price rises with an increase in Value Added Tax (VAT).

Analysis by Robert Peston, BBC economics editor

Just because the doors of Greek banks are open today, don't be fooled into thinking they and the Greek economy are anywhere near back to recovery.

There are still major restrictions on the ability of their customers to obtain their cash or move it around.

The symbolic importance of the European Central Bank turning on the emergency lending tap again was important, but it has only been turned on a fraction.

It has given enough additional Emergency Liquidity Assistance - €900m - to keep the banks alive in a technical sense.

There is no possibility of them thriving for months and even possibly years.

Read more from Robert

IMF spokesman Gerry Rice confirmed in a statement that Greece had repaid the totality of its arrears.

"As we have said, the fund stands ready to continue assisting Greece in its efforts to return to financial stability and growth," he said.

Greece missed its first repayment to the IMF on 30 June and another on 13 July during deadlock over negotiations for a third bailout.

The crisis brought Greece to the brink of economic collapse and an exit from the euro.

The government has since reached a cash-for-reforms deal with its creditors and negotiations are due to begin on the proposed €86bn rescue package.

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Media captionMark Lowen reports from Athens: "They queued from early morning"

For the past three weeks, Greeks have been waiting in line at cash machines to withdraw a maximum of €60 (£41) a day, a restriction imposed amid fear of a run on the banks.

From Monday, the daily limit becomes a weekly one capped at €420 (£291), meaning Greeks will not have to queue every day.

However, a block on transfers to foreign banks and a ban on cashing cheques remain in place.

VAT is rising from 13% to 23% meaning Greeks will pay more on a range of goods and services, including taxis and restaurants.

The rise was among a package of reforms demanded by Greece's creditors.

Dimitris Chronis, an Athens kebab shop owner, said the new taxes were bad news for his business.

"I can't put up my prices because I'll have no customers at all," he said.

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Media captionMark Lowen from a traditional taverna in Greece on the likely impact of VAT increases

"We used to deliver to offices nearby but most of them have closed. People would order a lot and buy food for their colleagues on special occasions. That era is over."

Prime Minister Alexis Tsipras faced a rebellion from within his left-wing Syriza party over the tough austerity measures being demanded by other eurozone leaders, who are among Greece's creditors.

But last week's vote in the Greek parliament paved the way for Greece to receive the €7bn bridging loan that enabled the reopening of the banks.

Mr Tsipras has since replaced his rebel ministers but analysts say his government has been weakened and fresh elections may be held in September or October.

The Greek parliament is due to hold a second vote on Wednesday on measures including justice and banking reforms. The government is again likely to scrape through, supported by opposition parties.

Representatives from Greece's creditors - known as the Troika - are due to arrive in the country soon and talks on the new bailout are expected to last about a month.

The tough negotiations over Greece have also revealed divisions within the eurozone about the future of the bloc.

Germany, which is the largest contributor to Greek rescue funds, has taken a tough line on Greece, while other states, such as France, have appeared more conciliatory.

On Monday, French President Francois Hollande put forward his ideas for a new parliament for the eurozone countries and a shared budget.

The eurozone is currently managed by the Eurogroup, made up of the finance ministers of each nation.