BBC News - Energy price slump sends eurozone into deflation

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Consumer prices in the eurozone fell sharply in February to minus 0.2%, putting more pressure on the European Central Bank.

The slide into deflation is a sharp reversal from the revised 0.3% increase recorded in January.

It is the first fall in inflation since September when it shrank by 0.1%, according to Eurostat.

Energy drove the decline, with prices down 8% in February compared to a 5.4% slide in January.

The dismal figures have dashed hopes that ECB efforts to boost prices were working. That raises the chance of the bank announcing further stimulus measures next month.

It has already announced a cut to its bank deposit rate, which remains in negative territory.

ECB chief Mario Draghi insisted earlier this month the policies were working.

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Analysis: Andrew Walker, economics correspondent

It's not the first time the eurozone inflation had slid below zero, and once again the price falls are driven by lower energy costs. But the weakness is widespread.

The breakdown from the EU's statistical agency (not a very detailed one) shows every category having lower inflation than in the previous month. The highest, for services, is just 1%, which is well short of the European Central Bank's target of below but close to 2%.

The ECB has already decided to review its policy next week. The deflation news adds to the chances that the review will lead to more action to get inflation back up (yes, up) towards the target.

That means some combination of more quantitative easing - buying financial assets with newly created money - or taking some of the ECB's interest rates even further below zero.

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Nordea economist Holger Sandte said: "Deflation would be a disaster for the euro area as the burden of high debt would increase. Therefore, the ECB will continue easing monetary policy significantly.

"But no matter what the ECB decides to do on 10 March, inflation is likely to hover around zero during the next few months before it picks up - if oil prices behave well."

Economic sentiment across the eurozone deteriorated more than expected in February, according to research by the European Commission.

The Group of 20 (G20) finance ministers and central bankers agreed on Saturday to use "all policy tools, monetary, fiscal and structural - individually and collectively" to renew growth.

Bloomberg News - These Ten Countries Are The Most Globally Connected

It's a lesson everyone from a Mafia member to an Ivy-League applicant knows only too well: It pays to be connected.

And it's something that countries striving to improve the lot of their citizens should pay heed to as well. So says the research arm of McKinsey & Co. in a 144-page report.

The global consultants found that the more tied-in a country is to the rest of the world, the better its economy fares. Being connected doesn't stop at trade and finances. It’s also about people -- primarily the number of immigrants a nation has -- and the amount of data streaming across a country's borders.

Putting it all together, the McKinsey Global Institute ranked 139 countries by how linked they are to the rest of the world. At the top is the tiny island state of Singapore, which has successfully made itself into a regional center in Asia, and the Netherlands, one of Europe's main digital hubs.

The U.S. comes in third, followed by Germany. China ranks seventh.

At the bottom is another island nation, Seychelles, and Sierra Leone. Japan, the world's third-largest economy with a host of global brands, comes in surprisingly low, at No. 24, mainly due to its limits on immigration.

The report reckons that the world economy as a whole benefited to the tune of about $7.8 trillion in 2014 from the flow of goods, services, finance and data across borders. 

"Countries that are open to global flows increase their GDP," or gross domestic product, said Susan Lund, a partner at the institute who is located in Washington.

McKinsey also argues that reports of the death of globalization are premature. Yes, world trade growth has slowed markedly. And global capital flows have collapsed, after peaking at close to $12 trillion in 2007 before the onset of the financial crisis.

Yet the baton has been taken up by an explosion in the transmission of data around the world. Half of Facebook Inc.'s users had at least one international friend in 2015, up from just 16 percent in 2012.

And it's more than just sharing cute cat videos. Facebook estimates that 50 million small- and medium-sized enterprises are on its platform, roughly double the amount in 2013. On average, 30 percent of their fans are from other countries, McKinsey said in its report.

"We're entering a new and different era of globalization," Lund said. "And the defining feature is data and digital flows."

by Rich Miller

BBC News - IMF warns the global economy is "highly vulnerable"

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Image captionOil prices have collapsed about 70% over the last 18 months

The International Monetary Fund (IMF) has said the global economy has weakened further and warned it was "highly vulnerable to adverse shocks".

It said the weakening had come "amid increasing financial turbulence and falling asset prices".

The IMF's report comes before the meeting of G20 finance ministers and central bank governors in Shanghai later this week.

It said China's slowdown was adding to global economic growth concerns.

China's economy, the second-biggest in the world, is growing at the slowest rate in 25 years.

"Growth in advanced economies is modest already under the baseline, as low demand in some countries and a broad-based weakening of potential growth continue to hold back the recovery," the Washington-based IMF said.

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Image captionThe G20 finance ministers and central bank governors' meetings take place later this week in Shanghai

"Adding to these headwinds are concerns about the global impact of China's transition to more balanced growth, along with signs of distress in other large emerging markets, including from falling commodity prices."

The IMF also noted any future prospects for global growth "could be derailed by market turbulence, the oil price crash and geopolitical conflicts".

The agency has called on the G20 group to plan new mechanisms to protect the most vulnerable countries.

Earlier this year, the IMF downgraded its forecast for global economic growth. It now expects economic activity to increase 3.4% this year followed by 3.6% in 2017.

BBC News - Woodford: Brexit won't hurt UK economy

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Leaving the EU would not necessarily damage the UK economy, fund manager Neil Woodford has reiterated.

He said he disagreed with the views expressed by FTSE 100 bosses in a letter published on Tuesday.

Heads of companies including BT, Marks & Spencer and Vodafone said an EU exit would deter investment in the UK.

But Mr Woodford argued it was very difficult to build a credible economic argument for the UK either staying in or leaving the union.

Rather, the debate was a political argument about issues such as immigration and sovereignty, he said.

The long-term economic implications may not be as extreme as some have suggested, but regardless of the outcome of the 23 June referendum the effect would be profound, according to the high-profile fund manager.

A vote to leave could also spark a crisis for the EU project, which Mr Woodford said was facing an array of challenges on a macro-economic and political level.

There were fundamental political differences between member states on a range of important issues, as well as an immigration crisis and a stagnant eurozone economy.

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"ECB chief Mario Draghi is printing money and trying to do his bit, but the macro headwinds are intense and unemployment remains high. It is these problems that a UK exit could shine a brighter light on," Mr Woodford told the BBC.

He believed investors should be braced for more "extraordinary monetary policy" by the world's central banks, such as negative interest rates and negative yields on 10-year government bonds.

Dividend threat

The global economy also faced a slowdown as well as the threat of deflation, while big problems remained in China, which was adjusting to cope with much slower economic growth.

Major FTSE 100 companies such as Shell, BP and HSBC would all be forced to cut their dividends this year amid continuing low oil prices and poor investment returns, Mr Woodford predicted.

On Tuesday, mining giant BHP Billiton said it was slashing its dividend, abandoning a long-held policy of maintaining or increasing payments to shareholders, reducing the payout from 62 US cents a share to just 16 cents.

Mr Woodford is considered in the industry as one of the UK's best-performing fund managers.

He rose to prominence during a 25-year career at Invesco Perpetual for taking a long-term view on investments.

One of the best-known examples of his strategy was refusing to invest in the dotcom boom of the late 1990s and early 2000s.

Last year he set up his own fund, Woodford Investment Management.

Reuters News - Chinese investors welcome new regulator, await new regulations

People's Bank of China Vice Chairman Liu Shiyu attends a news conference in Beijng, China, March 13, 2013.

REUTERS/STRINGER

China's new securities regulator Liu Shiyu, a former central banker, has a tough job on his hands - not least managing a huge weight of expectation from millions of small investors smarting from a recent stock market collapse.

Liu, appointed at the weekend to replace Xiao Gang, the scapegoat of the piece, inherits the fallout from near 50 percent drops in China's major indexes from peaks in June, blamed on a confluence of mistakes made by multiple regulators.

While Liu has no experience in the securities business and his curriculum vitae reads much like Xiao's - and other previous heads of the China Securities Regulatory Commission (CSRC) for that matter - some superstitious 'netizens' are pinning their faith on his birth sign.

They note he was born under the Chinese zodiac sign of the Bull, and have made word plays rhyming his family name, which sounds like the Chinese word for ox.

"The chairman's sign is the Bull; how could the A-share (mainland) market not become bullish?" Li Daxiao, chief economist of Yingda Securities, wrote on his microblog.

On Monday, the first day's trading since his appointment, the blue-chip CSI300 index.CSI300 rose to its highest in almost a month.

A Chinese microblog forum was flooded with pictures of people holding up their stock market wish-lists for Liu - from the technical, such as reviving the suppressed index futures market, to the direct: "Surpass 6,124", demanded one woman, referring to the record high the Shanghai Composite Index struck in 2007.

"Let me make a load of money so I can find a good wife," urged another poster.

Few analysts, however, expect much radical reform from Liu in the near term, nor does his appointment necessarily signal a dramatic change in approach from Beijing.

Liu, a former deputy central bank governor and a top official at a state-controlled bank, has to walk the same policy tightrope on which Xiao tripped and fell, according to investors, who blame a series of policy missteps for overheating a market rally and aggravating the ensuing crash.

It will also be difficult for a political appointee to overcome resistance from mid-level CSRC officials who fear their power will be diluted, analysts said. As in any government bureaucracy, many CSRC officials will be reluctant to give up their influence, such as over which companies get to conduct a stock market listing and when.

"It's irrational to expect that changing the chairman would have an impact on the market," said Chen Long, analyst at Gavekal Dragonomics in Beijing. "The institution needs to be changed, not the chairman."

The CSRC did not respond to requests by fax and telephone seeking comment.

DIFFERENT REGULATOR, SAME MARKET

"People always believe new officials are like a new broom," said Zhao Yayun, senior researcher at the Chongyang Institute for Financial Studies in Beijing. "To restore confidence, he (Liu) needs to roll out some exciting reform measures."

On his 'To Do' list, Liu has to restart a stalled reform process, with commitments to liberalize rules on initial public offerings and revive derivatives markets to improve investors' ability to hedge against downside risks, investors say.

Such hedging was set in reverse during the 2015 crash in the name of pursuing what the government referred to as "malicious" short sellers, which investors saw as a way for the government to apply pressure on them to buy and hold.

Potentially the toughest job for Liu, known in banking circles for his quiet demeanor, will be to repair damaged trust between the CSRC and investors, both institutional and individual, analysts said.

They estimate Chinese retail investors account for about 80 percent of daily trades and say many were caught out when they invested at the tail-end of the rally early last year only to see the market slump shortly afterwards.

Many institutional investors were scarred by the purge-like atmosphere that took hold in China's financial industry during the crash. They include foreign fund managers who were blamed in Chinese media for sabotaging the market.

YEAR OF THE BULL?

"Boosting investor confidence requires co-ordinated efforts (with other state agencies) rather than the CSRC alone," said Zhao at the Chongyang Institute. Chinese stock market sentiment is shaped by various factors, in particular the level of money supply and shifts in policy support for various industries.

There have been signals that Beijing is building the bureaucratic foundations for a "super regulator" to oversee the CSRC, the insurance and banking sectors and the People's Bank of China (PBOC), so Liu may see his position have less influence over time.

Born into a rural family in eastern Jiangsu province in 1961, according to local media, Liu graduated from the prestigious Tsinghua University, where he studied engineering and economics. Until last week, he was chairman of Agricultural Bank of China (AgBank) (601288.SS) (1288.HK).

(Additional reporting by Kevin Yao in BEIJING, Sam Shen in SHANGHAI and the Shanghai Newsroom; Editing by Ian Geoghegan and Neil Fullick)

Bloomberg News - Tipping Point Looms for Despairing South Africa

Not since Nelson Mandela walked out of Victor Verster prison 26 years ago have investors been gloomier about South Africa’s economy.

Money is pouring out at a record pace as inflows dwindle. The rand has plunged and unemployment is the highest among almost 40 developing nations tracked by Bloomberg. Drought is driving up food costs. Hanging in the balance is the investment-grade credit rating South Africa sweated to achieve in 2000, shortly after Mandela left office.

South Africans are paying the price not just for a collapse in commodities prices -- metals and mining contribute more than 50 percent of exports -- but for growing questions over whether President Jacob Zuma is up to the task. Stoking doubts were the antics at the finance ministry in December, when Zuma removed Nhlanhla Nene and replaced him with little-known lawmaker David van Rooyen. As bond yields soared and the rand crashed, he changed his mind four days later and installed Pravin Gordhan, Nene’s predecessor.

“The country still faces serious structural challenges, and the changes at the top of the finance ministry just reconfirmed the policy risks,” says Viktor Szabo, who helps manage $12 billion of emerging-market debt at Aberdeen Asset Management Plc. “Things could get worse.”

A key test looms Feb. 24 when Gordhan presents the national budget to lawmakers. He has said the government will do everything necessary to avoid a downgrade to junk, including reining in free-spending state enterprises and sticking to expenditure ceilings.

“The trust towards South Africa disappeared,” said Hakan Aksoy, a London-based bond fund manager at Pioneer Investment Management in London, which oversees 224 billion euros ($244 billion).

Since multiracial elections brought Mandela to power in 1994, the economy has grown an average of 3 percent a year, enabling the ruling African National Congress to provide housing, water and electricity to millions of households and extend social grants to more than 16 million people, while cutting government debt. The country’s benchmark stock index soared to a record less than a year ago, while bond yields fell to record lows.

Since then, the bottom has fallen out. The commodity rout could leave the economy growing at the slowest pace this year since 2009. The country narrowly avoided a recession during the third quarter, posting annualized expansion of 0.7 percent. Fitch Ratings on Dec. 4 cut South Africa’s credit rating one level to BBB-, the lowest investment grade, and in line with the assessment of Standard & Poor’s, which lowered its outlook to negative from stable on the same day.

‘Good Signals’

Gordhan, and increasingly Zuma too, recognize the challenge. In the past month, the finance minister has held meetings with heads of the country’s biggest companies to ask their advice on ways to stimulate the economy, while Zuma promised measures to appease the rating companies, including spending restraints and privatization of some state-owned companies. The rand has recovered some losses, gaining 3.1 percent against the dollar in February after plunging 27 percent in the previous 12 months, and bond yields fell.

While Gordhan’s statements since taking office have been “good signals,” they may not be enough, according Konrad Reuss, S&P’s managing director for Africa. South Africa’s “dismal” growth is the rating company’s biggest concern, while policy will remain under close scrutiny following the replacement of the finance minister, he said.

His skepticism is reflected in accelerating capital flight. Domestic investors more than doubled the amount sent overseas to 24.2 billion rand ($1.65 billion) in the third quarter from 10 billion rand in the previous three months, according to central bank data. Foreign investors sold a net 43 billion rand of stocks and bonds in the final five months of 2015; there’s no sign they’re returning, with net outflows this year at 20 billion rand as of Feb. 19.

While South Africa’s hardly alone among emerging-market nations that rely on commodity exports -- Brazil and Russia, among others, have seen their currencies tumble and ratings reduced to junk -- the policy bungles came at the worst possible time. And with local elections looming this year, Gordhan will have to convince investors he can withstand political pressure to increase spending.

“We are likely to remain quite cautious at current prices,” said Kieran Curtis, the London-based director of investment at Standard Life Investments Ltd., which oversees about $436 billion and is underweight South African debt. “The wish list of things that investors have is quite long and not really very achievable with the current political dynamic.”

by Xola Potelwa

BBC News - OECD: Urgent action needed to boost flagging global growth

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The Organisation for Economic Co-operation and Development (OECD) is calling for urgent action by world leaders to tackle slowing growth.

The call came as the think tank cut its global economic forecasts for 2016.

Last year, it forecast 2016 growth of 3.3%. It now says that will be just 3%.

It said trade, investment and wage growth were all too weak, adding that cutting interest rates and other monetary policy fixes were not sufficient to reflate growth.

Interest rates in many parts of the world have been cut to attempt to stimulate borrowing and investment. Rates in many countries, including the UK, are at record lows.

The US, notably, raised its rates by a sliver late last year. This was designed to calm investors' nerves, but to many, it now seems like a prematurely optimistic move.

Negative rates

The OECD has now cut its growth forecast for the US to 2% from the 2.5% it was predicting last November, one month before the country's interest rate went up.

In Europe, Japan and Switzerland, rates have been cut to negative, meaning that depositors pay the bank for keeping their money.

The OECD, a Paris-based think tank funded by rich nations, said: "Monetary policy cannot work alone.

"A stronger collective policy response is needed to strengthen demand."

UK growth is now forecast at 2.1%, down from the 2.4% it said it was expecting in its November report.

The OECD also cut its forecast for Europe's powerhouse, Germany, from 1.8% to 1.3%.

A major factor behind the global slowdown in the pace of growth is China, where growth rates have fallen from well above 7% to under 6% now.

The OECD was not expecting further pain from China, It left its forecast for Chinese growth at 6.5% for this year.

India, which imports a lot of its energy and is thriving on the recent low oil price, saw its forecast for growth revised up from 7.3% to 7.4%.

Bloomberg News - Landlords Rush to Buy Homes Amid Bank of England Worries

Buy-to-let landlords are rushing to purchase U.K. homes ahead of an increase in the stamp-duty sales tax in April.

The number of homes acquired by rental homeowners rose 71 percent in January from the same month a year earlier, according to data compiled by Countrywide Plc. the U.K.’s largest realtor. Landlords purchased 21 percent of all the homes sold in the period, compared with 17 percent a year earlier, Countrywide said.

Chancellor of the Exchequer George Osborne is raising the sales tax by three percentage points for landlords and purchasers of second homes in April, saying they may be pricing first-time buyers out of homes. The Bank of England has raised concerns that the mortgages may pose risks to financial stability because its unclear how landlords will behave if prices fall or costs of repayment increase, Deputy Governor Jon Cunliffe said Feb. 9.

“The jump in activity comes despite many landlords being concerned by the current focus of government on home ownership” at the expense of rental homes, said Johnny Morris, research director at Countrywide. “The reduction in mortgage-interest rate relief due to start in 2017 and prospects of future regulation has left many landlords considering their position, meaning we’ll likely see a drop in investor activity after April.”

Loans to buy-to-let landlords rose 41 percent by value from a year earlier, according todata compiled by the Council of Mortgage Lenders. That compares with a 14 percent increase in lending to first-time buyers in the same period.

Properties purchased as second homes rose to 4 percent of the total for the period, from 2 percent a year earlier, according to Countrywide.

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Explore Housing Prices in London

In the private sector, the average London household paid 298 pounds ($427) a week in rent, a 17-pound increase from a year earlier, according to the 2014-2015 English Housing Survey. Rents nationally remained unchanged, according to the report published Thursday.

BBC News - Top German court questions ECB bond-buying

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Image captionThe German Constitutional Court seeks to clarify disputed areas of EU law

Top judges in Germany are set to examine a European Central Bank bond-buying scheme, because critics say it risks enabling the ECB to prop up indebted eurozone governments.

The German Constitutional Court is considering legal objections to ECB Outright Monetary Transactions (OMT) - a scheme launched in 2012 during the eurozone debt crisis, but not yet used.

The ECB is buying €60bn (£46bn; $67bn) of bonds monthly to help the eurozone.

That bond-buying is separate from OMT.

The announcement of OMT in 2012 by ECB President Mario Draghi had a calming effect on markets that were spooked by the eurozone sovereign debt crisis. OMT would involve unlimited bond purchases.

Mr Draghi famously declared that he would do "whatever it takes" to safeguard the euro.

Thwarting speculators

Last summer the European Court of Justice (ECJ) - the EU's top court - ruled that OMT was compatible with EU law. The scheme fell within the ECB's mandate of maintaining price stability, the ECJ decided.

The idea of the ECB buying up the sovereign bonds of a country in distress, to prevent speculators forcing up yields - the interest charged on those bonds - alarms some German politicians.

OMT purchases would be made under the strict terms of a eurozone bailout - a government would have to enact major economic reforms, in order to get such emergency ECB support.

Observers say the German court's ruling - not expected for months - could have an impact on the current ECB bond-buying programme, known as quantitative easing (QE).

The OMT critics in the German case include Peter Gauweiler, a conservative MP in the Bavarian CSU party, ex-justice minister Herta Daeubler-Gmelin (Social Democrat SPD) and leftist Die Linke MPs.