Bloomberg News - EU Braces for a Trans-Atlantic Trade War

Shipping containers sit on board a cargo ship at the Eurogate Terminal at the Port of Hamburg.

 Photographer: Krisztian Bocsi/Bloomberg

The European Union warned about the costs of a trans-Atlantic trade war while bracing for one to erupt after the U.S. signaled it will reject the bloc’s demand for an unconditional waiver from metals-import tariffs.

“A trade war is a losing game for everybody,” Belgian Finance Minister Johan Van Overtveldt told reporters in Sofia. “We should stay cool when we’re thinking about reactions but the basic point is that nobody wins in a trade war so we try to avoid it at all costs.”

Donald Trump’s administration is asking Europe, Canada and other allies to accept quotas in exchange for an exemption from steel and aluminum tariffs that kick in May 1, when a temporary waiver expires. “We are asking of everyone: quotas if not tariffs,” Commerce Secretary Wilbur Ross said on Friday.

This puts the EU in the difficult position of either succumbing to U.S. demands that could breach international commerce rules or face punitive tariffs. Forcing governments to limit shipments of goods violates World Trade Organization rules, which prohibit so-called voluntary export restraints. The demand is also contrary to the entire trade philosophy of the 28-nation bloc, which is founded on the principle of the free movement of goods.

The White House last month temporarily shielded some trading partners including the EU from the duties, at 25 percent for imported steel and 10 percent for aluminum on the grounds of protecting national security. U.S. Trade Representative Robert Lighthizer is negotiating with countries seeking permanent exemptions. So far, South Korea is the only nation to be spared from the duties, after reaching a deal to revise its bilateral free-trade agreement with the U.S.

While WTO rules foresee the possibility of countries taking emergency “safeguard” measures involving import quotas for specific goods, such steps are rare, must be temporary and can be legally challenged. The EU is demanding a permanent, unconditional waiver from the U.S. tariffs.

Trump’s demands to curb steel and aluminum exports to 90 percent of the level of the previous two years are unacceptable, an EU government official said. The official, who asked not to be named as talks are ongoing, signaled the EU’s response would depend on the level of the quotas after which the punitive tariffs would kick in.

The European Commission, the EU’s trade authority in Brussels, declined to comment on the prospect of an agreement with the U.S. involving any import quotas while stressing the bloc’s consistent call for an unconditional, permanent exclusion from the American metal levies.

“In the short run it might help them solve their trade balance but in the long run it will worsen trade conditions,” Bulgarian Finance Minister Vladislav Goranov said in Sofia. “The tools they’re using to make America great again might result in certain mistakes because free world trade has proven to be the best solution for the development of the world so far.”

Meanwhile, the EU has made clear it won’t be intimidated. French President Emmanuel Macron said this month that “we won’t talk about anything while there’s a gun pointed at our head.”

German Chancellor Angela Merkel said she discussed trade disputes with Trump during talks at the White House on Friday and that she failed to win a public commitment to halt the tariffs.

Adding to signs of trans-Atlantic tensions, Le Maire told his peers in Sofia during a discussion on taxation: “One thing I learned from my week in the U.S. with President Macron: The Americans will only respect a show of strength.”

— With assistance by Piotr Skolimowski, Joao Lima, Slav Okov, Alexander Weber, Viktoria Dendrinou, Andrew Mayeda, and Elizabeth Konstantinova

Reuters News - Korean leaders aim for end of war, 'complete denuclearization' after historic summit

SEOUL (Reuters) - The leaders of North and South Korea embraced on Friday after pledging to work for the “complete denuclearization of the Korean peninsula”, on a day of smiles and handshakes at the first inter-Korean summit in more than a decade.

The two Koreas announced they would work with the United States and China this year to declare an official end to the 1950s Korean War and seek an agreement on “permanent” and “solid” peace.

The declaration included promises to pursue phased arms reduction, cease hostile acts, transform their fortified border into a peace zone and seek multilateral talks with other countries including the United States.

“The two leaders declare before our people of 80 million and the entire world there will be no more war on the Korean peninsula and a new age of peace has begun,” the two sides.

South Korean President Moon Jae-in agreed to visit the North Korean capital of Pyongyang this year, they said.

Earlier, North Korea’s Kim Jong Un became the first North Korean leader since the 1950-53 Korean War to set foot in South Korea after shaking hands with his counterpart over a concrete curb marking the border in the heavily fortified demilitarized zone.

Scenes of Moon and Kim joking and walking together marked a striking contrast to last year’s barrage of North Korean missile tests and its largest ever nuclear test that led to sweeping international sanctions and fears of war.

BBC News - UK economy in weakest growth since 2012

The impact of the 'Beast from the East' weather front was "relatively small", the ONS said

The UK economy grew at its slowest rate since 2012 in the first quarter of the year, the Office for National Statistics (ONS) has said.

GDP growth was 0.1%, down from 0.4% in the previous quarter, driven by a sharp fall in construction output and a sluggish manufacturing sector.

The ONS said the recent extreme weather had a "relatively small" impact.

The prime minister's spokesman said the data was "clearly disappointing" but the economic fundamentals "are strong".

He said the economy "has grown every year since 2010 and unemployment is at a 40-year low, but we are not complacent". The government would continue with a balanced approach, he added.

Sterling fell sharply as the chances of an interest rate rise in May receded. Following the news the pound was down almost one and a half cents against the dollar at $1.3775.

Rob Kent-Smith, head of national accounts at the ONS, said: "Our initial estimate shows the UK economy growing at its slowest pace in more than five years with weaker manufacturing growth, subdued consumer-facing industries and construction output falling significantly.

"While the snow had some impact on the economy, particularly in construction and some areas of retail, its overall effect was limited with the bad weather actually boosting energy supply and online sales."

The figures are a first estimate and are likely to be revised by the ONS as more data becomes available. Many economists had forecast first-quarter growth of 0.3%.

John Hawksworth, chief economist at PwC, said: "These are only preliminary figures and are based largely on estimates rather than actual data for March, when the snow was at its worst. So there could be larger than usual revisions."

Construction was the biggest drag on GDP, falling 3.3% over the first three months of the year, while manufacturing growth slowed to 0.2%.

Consumer-facing industries, including retail, fell sharply amid an ongoing spending squeeze caused by higher inflation and slow wage growth.

• Ahmed: Why is economic growth so poor?
• House building slumps as 'Beast' hits economy
• Carney: Brexit uncertainty could delay rate rise
• Year-long wage squeeze nearing an end
• UK inflation falls to lowest in a year

Last week, the governor of the Bank of England, Mark Carney, hinted that interest rates could rise more gradually than expected due to continuing uncertainty over Brexit and "mixed data" on the economy.

Ben Brettell, senior economist at Hargreaves Lansdown, said that taken with the latest GDP figures, the chances of a rate rise had now fallen dramatically.

"As recently as last week markets were pricing in a near 90% chance that the Bank of England would raise rates next month... today the market's saying there's just a 25% chance that rates will move in May."

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Analysis: Jonty Bloom, BBC business correspondent

Everybody was all set to blame the Beast from the East, the blast of snow and cold that hit the country last month, for a slowdown in growth.

But not only was the slowdown much sharper than thought, but the ONS then very helpfully explained that it was NOT due to the bad weather. Any fall in economic activity as we huddled indoors was mainly replaced by us turning up the heating and shopping online.

Now, GDP figures are often revised and there will be some bounce back. But the more worrying factor is that construction is deep in recession, manufacturing's spurt of growth is slowing, and consumer-facing service companies are not as full of the joys of spring as they were.

If that trend continues the economy will struggle to rebound, no matter what the weather.

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Despite the weak figures, some economists suggested the slowdown could prove to be temporary, noting the one-off impact of this winter's weather.

Wage growth is also picking up, unemployment is at a four-decade low and inflation fell in March to the lowest rate in a year.

Chancellor Philip Hammond said the latest data "reflects some impact from the exceptional weather that we experienced last month, but our economy is strong and we have made significant progress".

"Our economy has grown every year since 2010 and is set to keep growing, unemployment is at a 40 year low, and wages are increasing as we build a stronger, fairer economy that works for everyone."

Shadow chancellor John McDonnell said: "The chancellor will want to blame this all on a bit of bad weather, but the ONS say this had a limited impact. The truth is that the last eight years of Tory economic failure has allowed our economy to be left exposed.

"It's clear to everyone except Philip Hammond that our economy is in need of increased investment and working families are struggling with the cost of living and the burden of increasing household debt."

BBC News - UK government borrowing lowest for 11 years

Government borrowing has fallen to its lowest annual level in 11 years, according to the latest official figures.

Borrowing fell by £3.5bn to £42.6bn in the 2017-18 financial year, the Office for National Statistics (ONS) said.

That was below the estimate of £45.2bn produced by the independent Office for Budget Responsibility last month.

Borrowing narrowed to 2.1% of gross domestic product (GDP) last year, down from 10% in 2010.

However, total public debt as a percentage of GDP edged up to 86.3%, up from 85.3% the year before. In cash terms it stands at £1.798 trillion.

The figures are the first provisional estimates of the last financial year. The ONS stressed they would be revised as more data becomes available.

March's deficit was £1.3bn, well below a forecast for a gap of £3.25bn.

The borrowing figure does not include the amount spent on supporting the state-owned banks.

Mr Hammond has kept the broad aim of the previous chancellor, George Osborne, of reducing the gap between spending and borrowing, although he has eased off on the pace of cut-backs.

Mr Hammond said: "Thanks to the hard work of the British people, borrowing is the lowest in over a decade. Our economy is at a turning point with debt starting to fall and people's wages rising, as we build an economy that truly works for everyone."

Image copyrightGETTY IMAGES

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Analysis by BBC economics editor Kamal Ahmed

Philip Hammond welcomed the news - his target is to eliminate the deficit by the middle of the next decade.

But the chancellor also knows that a lower deficit creates its own challenges.

And a test for the type of politician he is.

The figures will increase calls for the Treasury to signal a significant increase in public spending at the Autumn Budget - with the NHS in England and Wales the priority.

That is something Mr Hammond signalled he would do at the Spring Statement last month, if the deficit was below target.

Which it now is.

But many in the Treasury believe that now is not the time to turn on the spending taps and that the focus should remain on reducing the deficit.

Particularly while the economic headwinds of a sluggish economy and possible Brexit risk remain.

Read more here:

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But Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the figures did not necessarily indicate an improving economy: "Rapidly falling public borrowing continues to reflect sharp falls in spending, rather than a reviving economy.

"Lower borrowing in March than last year primarily reflected a £1.0bn decline in interest payments and a £1.4bn reduction in Local Authority borrowing. Both these expenditure components are volatile and tell us little about the underlying health of the economy."

John Hawksworth, chief economist at PwC, said: "The key challenge facing the chancellor in his Budget in November will be how to trade-off growing political pressures to ease austerity against his desire to get the debt ratio down as far as possible.

"The undershoot in the deficit this year has given the chancellor a little more wriggle room, but it does not alter the fundamental strategic choice he will need to make in November."

Reuters News - Wall Street sunk by corporate cost warnings, bond nerves

by Struthi Shankar
(Reuters) - Wall Street dropped sharply on Tuesday as concerns over marquee companies warning of higher costs were exacerbated by the benchmark U.S. 10-year Treasury yield piercing the 3-percent level for the first time in four years.

Google-parent Alphabet (GOOGL.O) sank 4.9 percent, erasing all its gains for the year, as investors focused on the company’s rising expenses and shrinking margins rather than a profit beat.

Caterpillar (CAT.N) sank 6.6 percent after it warned of the impact of steel price hikes on its business. The stock had gained as much as 4.6 percent earlier on a strong set of quarterly results and full-year outlook.

The 10-year yield, a benchmark for global borrowing costs, has been driven steadily higher by a combination of concerns over inflation, growing debt supply, and rising Federal Reserve borrowing costs. [US/]

“There are factors that are adding to inflation pressure like a tightening labor market, trade tension and rising commodity prices,” said Bill Northey, senior vice president with U.S. Bank Wealth Management in Helena, Montana

“These higher Treasury yields are providing competition with riskier fixed income products and things like REITs and dividend-producing stocks.”

At 13:54 p.m. ET, the Dow Jones Industrial Average .DJI was down 523.11 points, or 2.14 percent, at 23,925.58, the S&P 500 .SPX was down 41.90 points, or 1.57 percent, at 2,628.39 and the Nasdaq Composite .IXIC was down 132.62 points, or 1.86 percent, at 6,995.98.

While industrial stocks hit the Dow, the Nasdaq was pulled down by a sharp drop in the ‘FAANG’ group of technology stocks.

Facebook (FB.O), which reports on Wednesday, fell 3.6 percent after a report that the social network hosted stolen identities and social security numbers.

Apple (AAPL.O) was down 1.7 percent, falling for the fifth straight session as comments from chipmaker AMS (AMS.S) and smartphone screen maker Corning (GLW.N) fed fears of slowing demand for iPhones.

Amazon (AMZN.O) and Netflix (NFLX.O) also succumbed to the pressure.

“Rising U.S. yields are hurting equities in general, when you combine with the weakness in FAANG stocks, it makes for a tough day in the market,” Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.

Other notable laggards included Lockheed Martin (LMT.N), which sank 7.4 percent after the Pentagon’s No.1 weapons supplier failed to raise its outlook for cash flow. 3M (MMM.N) dived 8.6 percent after it cut the top end of its full-year forecast.

Declining issues outnumbered advancers by a 2.23-to-1 ratio on the NYSE. Declining issues outnumbered advancers by a 2.06-to-1 ratio on the Nasdaq.

The S&P index recorded 13 new 52-week highs and 19 new lows, while the Nasdaq recorded 56 new highs and 72 new lows.

Reporting by Sruthi Shankar in Bengaluru; Editing by Shounak Dasgupta

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BBC News - Interest rates to rise twice this year, says EY Item Club

The Bank of England is likely to raise interest rates twice this year and twice in 2019, despite a sluggish economy, says a forecasting body.

Bank governor Mark Carney has said a rate rise is "likely" this year, but any increases will be gradual.

However, the EY Item Club said a tight labour market and firming earnings growth were likely to fuel "hawkish instincts" at the Bank.

The forecaster predicted GDP growth of 1.6% this year and 1.7% in 2019.

It said the expected rate rises would allow the Bank to "gradually but steadily normalise monetary policy".

UK interest rates currently stand at 0.5%. Many economists and investors in the markets believe that the Bank's Monetary Policy Committee (MPC) will vote for a 0.25% rate rise at its May meeting.

'Chugging along'

Howard Archer, chief economic adviser to the EY Item Club, said there was a risk that two rate hikes this year would exert "unnecessary pressure" on consumers.

However, he added that the growth of fixed-rate mortgages meant that fewer homeowners would be affected by a rate rise.

"In addition, the burden of interest payments to the average household was at a record low at the end of 2017, and so consumers are in a relatively healthy position to cope with dearer money," he said.

Mr Archer said the UK economy was "chugging along at a fairly steady but uninspiring rate", with inflation continuing to fall and a tight jobs market expected to "deliver some uptick in pay growth".

At the same time, separate research by Deloitte showed an improvement in UK consumer confidence, but said this had "yet to translate into an overall increase in spending".

Deloitte's latest quarterly Consumer Tracker survey said UK consumers were feeling "more upbeat" about their personal finances.

However, people were still prioritising essential spending over luxuries, with the retail and casual dining sectors facing "unprecedented challenges".

Bloomberg News - America First, Inflation Shocks, Trade War Risks: IMF Highlights

by Andrew Mayeda

Enjoy it while it lasts. That’s the overarching message of the IMF’s latest World Economic Outlook.

The world economy is growing at the fastest pace since 2011, and the International Monetary Fund expects that to continue this year and next, according to the latest global forecasts by the Washington-based fund. But it predicts growth will taper as the central banks tighten monetary policy and the benefits of U.S. tax cuts wear off.

The IMF is urging policy makers to take steps now to insulate their economies against the next downturn by making structural reforms and tax changes that raise potential output.

Here are some of the other highlights in the report:

The U.S. Locomotive

Last year, the expansion covered two-thirds of countries, the broadest upswing since 2010, when the world was coming out of the financial crisis.

But there are signs the synchronized recovery may be becoming a little more uneven, at least in the short term, with the U.S. charging ahead, fueled by tax cuts and government spending. The IMF bumped up its projection for U.S. growth both this year and next. It raised its forecast by 0.2 percentage point each, to 2.9 percent in 2018 and 2.7 percent in 2019.

After the fiscal stimulus comes the hangover. The fund also cut its projections for U.S. growth after 2022, when some of the tax cuts will have expired and Washington will be grappling with a bigger budget deficit.

Another side effect will be higher borrowing costs. The IMF now projects the U.S. Federal Reserve will raise its policy rate target, currently in a range of 1.5 percent to 1.75 percent, to about 2.5 percent by the end of 2018 and about 3.5 percent by the end of next year.

Trade Tensions

The fund listed increased protectionism as a risk to its global outlook. An increase in trade barriers could “harm market sentiment, disrupt global supply chains, and slow the spread of new technologies, reducing global productivity and investment,” the IMF said.

The fund compared tariffs and other trade barriers around the world. It found that advanced countries in the Group of 20 generally have more open economies than emerging markets. However, it found that emerging markets have liberalized faster over the past two decades, especially from the mid-1990s to mid-2000s. Since the financial crisis, emerging economies within the G-20 have put up more barriers, according to the fund.

Emerging Markets Healing

The crash in oil prices in 2014 drove a “wedge” between emerging markets that export and import commodities. But the IMF says prospects are improving for commodity exporters after three tough years. Emerging Asia is also seeing stronger expansion, contributing to a solid growth pickup in the developing world, according to the fund.

Beyond 2019, the IMF sees growth in emerging markets and developing economies stabilizing at about 5 percent a year, well below the pace before the global financial crisis in 2008.

That means many countries won’t see their incomes catch up with rich nations. More than one-quarter of emerging markets and developing countries won’t see their incomes converge with the advanced world, according to the IMF. While convergence will continue in China, India and East Asia, incomes will barely exceed advanced-nation growth or even lag in regions such as sub-Saharan Africa, Latin America and the Caribbean.

Inflation Shock

The IMF noted headline inflation has picked up with the gains in oil prices. But core inflation, which excludes food and fuel prices, “generally remains soft.”

Still, with U.S. inflation edging up, the fund analyzed how the world would be affected by a spike in American consumer prices. The IMF looked at the impact of a 50 basis-point increase in term premiums both this year and next. The term premium refers to the excess yield investors demand to hold long-term bonds.

Under such a scenario, output across advanced economies would drop by three-quarters of a percent by 2020. The IMF notes that the euro area and Japan have limited room to cut interest rates, meaning they might have to resort again to unconventional monetary policy to cushion the blow.