BBC News - Federal Reserve cuts rates again amid trade and growth fears

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Image captionThe Fed is trying to interpret mixed economic signals

The US central bank has cut interest rates again, hoping to shield the economy from the impact of trade wars and a global slowdown.

The Federal Reserve lowered the target for its benchmark rate by a quarter point, to a range of 1.5% to 1.75%. The move was the third cut in four months.

The decision comes as US economic growth slowed to an annual rate of 1.9% in the most recent quarter.

Fed Chair Jerome Powell implied the bank would hold off on further cuts.

"We feel that policy is well-positioned," he said at a press conference in Washington at the end of the Fed's two-day meeting.

Since the last meeting, he said risks to the economy have subsided, pointing to the possibility of a limited "phase one" US-China trade pact and reduced odds of a no-deal Brexit.

Mr Powell suggested he does not expect the bank to change rates again unless economic conditions worsen unexpectedly.

"We see the current stance of policy as likely to remain appropriate," he said.

Economic signals

Wednesday's cut was expected. Eight policymakers voted in favour of reducing the rate, while two opposed the action, preferring to hold the rate steady.

The divide reflects mixed economic signals. While growth has slowed, it has held up better than expected, decelerating only slightly from the 2% rate seen in the three months to 30 June.

The expansion has been bolstered by spending by consumers, who are enjoying some of the lowest unemployment rates in almost 50 years.

However, manufacturing and business investment continues to fall, as firms grapple with uncertainty generated by the US-China tariff war and other trade disputes.

Global economic growth has slowed and inflation also remains lower than the Fed would like, moderating fears that further rate cuts will trigger a damaging acceleration in prices.

'Normal context'

As growth has softened, US President Donald Trump has sought to pin responsibility on the Fed. He has repeatedly called on the bank to cut rates more aggressively, pointing to lower borrowing costs in other countries.

Mr Powell said the cuts to date have already helped certain sectors sensitive to borrowing costs, such as housing. The full effects will be felt over time, he added.

Dr. Kerstin Braun, president of Stenn Group, an international provider of cross-border trade finance, said looking to the Fed to solve the issues in the economy won't work.

"The US needs to end uncertainties about global trade while also implementing fiscal policies that foster investment in infrastructure and innovation," she said.

With the cuts, the Fed is "squandering" its power despite lack of a real crisis, she added.

"The stock market is peaking, consumers are still spending, and the tariff war could be resolved," she said. "This isn't the normal context for lowering interest rates."

BBC News - Hong Kong's leader issues fresh recession warning

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Hong Kong's leader Carrie Lam said the territory is likely to record negative growth for the year as months of protests have knocked the economy.

The unrest has disrupted businesses and dealt a particularly heavy blow to the tourism and retail sectors.

The warning comes ahead of preliminary gross domestic product figures due on Thursday that are expected to show Hong Kong entered a technical recession.

That is defined as two consecutive quarters of negative growth.

In a briefing in Hong Kong on Tuesday, Ms Lam said the third quarter growth numbers are likely to show that outcome.

To combat the slowdown, she said the city has so far injected more than HK$20bn ($2.6bn; £2bn) to support the economy including the transport, tourism and retail sectors.

Ms Lam said the government will deliver more relief measures, without giving specific details.

Her comments follow a similar warning from the territory's Finance Secretary Paul Chan over the weekend. He said it would be "extremely difficult" to hit the government's pre-protest forecast of growth of between 0% and 1% for 2019.

"The blow to our economy [from the protests] is comprehensive," Mr Chan said.

The demonstrations began over a proposed extradition bill between the territory and mainland China, and have evolved into demands for greater freedoms.

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Image captionFive months of protests in Hong Kong have hit the territory's economy

Hong Kong is part of China, but its citizens have more autonomy than those on the mainland.

Clashes between police and activists have become increasingly violent, with police using tear gas and protesters storming parliament.

Those protests have led to a sharp decline in tourist arrivals, with visitor numbers expected to have slumped 50% in October.

Hong Kong was one of the world's most visited cities last year, with 30 million tourists.

Retailers have also been hard hit. Some shops have been forced to shorten trading hours, while workers report fears over their safety as well as getting to work.

Mr Chan said in August that retail sales had plunged more than 25% - the biggest monthly drop on record.

Reuters News - Iran's thirsty energy industry runs up against water shortage

LONDON (Reuters) - The plan to build a petrochemical plant near the Iranian city of Firouzabad had everything usually needed to get a project off the ground: approval from the nation’s top authority, funding from the Revolutionary Guards and plentiful gas feedstock.

But a decade on, work at the site is only 10% complete because of a row over an increasingly scarce resource in Iran that is vital to keep the facility cool: water.

“In early project studies, there were some mistakes about the amount of water the plant would need,” said Hamidreza Soleymannejad, one of the plant’s project managers. “They found the plant needs a lot of water, but the region could not provide that.”

The fate of the Firouzabad plant is not unique in Iran, even though the nation has huge oil and gas reserves and is eager to expand output of downstream products which can more easily evade crippling U.S. sanctions on its vital energy industry.

At least a dozen petrochemical, fertilizer and refinery projects, with combined capacity to produce more than 5 million tonnes a year of products, have hit the buffers or been delayed due to water supply problems, according to a Reuters assessment.

The list was compiled based on reports in state media, direct comments from project managers involved in several of the delayed plants, traders, and details published by some of the companies or major shareholders in the developments.

Reuters sought comment from investors or companies involved. Most did not respond to emailed requests, while two confirmed water shortages were a major issue. One denied there was any problem, although a trader with close links to the project flagged a lack of water supplies as a crucial factor.

Fasa Petrochemical Company and Darab Petrochemical Company, which each own 30% in Firouzabad Petrochemical Company, did not respond to requests for comment.

“Many of these projects were proposed by lawmakers who were trying to create jobs in their constituencies. Unfortunately the technical studies have been widely ignored,” said Reza Banimahd, a businessman in Tehran who has worked on refinery projects.

The water shortage is one of many challenges facing Tehran as it seeks to skirt U.S. sanctions by ramping up production of products, which are more difficult to trace back to Iran than Iranian crude, which has clearly identifiable characteristics.

Under sanctions, crude exports have plunged 80% and are now worth about $700 million a month - a calculation based on Iran’s normal selling price although under sanctions Iran tends to sell crude at a discount. By comparison, Tehran has kept oil product sales at about $500 million a month, Reuters calculations show.

KEEPING COOL

Oil refineries and other processing plants need water mainly for cooling. Producing a single gallon of gasoline requires 0.61–0.71 of a gallon of water. But diverting limited supplies away from farming towards industry carries political risks.

Drought and depleting water supplies have sparked unrest. Farmers in Iran's central region protested here in several cities in 2018 over water mismanagement, as rainfall dropped 25% below the average.

The plant in Firouzabad, an inland area in the parched south of the country, aimed to produce 1 million tonnes of ethylene a year. Based on figures for a similar capacity plant, that output would use more than 2 million tonnes of water a year.

The government, which worries about falling national groundwater levels, wants the $500 million plant moved to the coast where desalinated water could be used. But local officials and a senior cleric have objected and the project has stalled.

Azizollah Hashemizadeh, Firouzabad’s Friday prayer leader who reports to Supreme Leader Ayatollah Ali Khamenei, the top authority in Iran’s theocratic system, said in June the project would bring prosperity and could not be shifted.

While Khamenei has the last word in state affairs, there are a range of parallel institutions below him that often compete for influence. For example, the Revolutionary Guards, an investor in the Firouzabad plant, has a separate command structure to the conventional army and has vast industrial interests.

The Revolutionary Guards did not respond to a request for comment sent via their website.

The structure of rival power centers often creates a tortured decision-making process and can push aside commercial and environmental factors.

“There is a problem with coordination between ministries over development plans,” said Kaveh Madani, a former Iranian deputy vice president for the environment and now visiting professor at London’s Imperial College, adding that sanctions had pushed the government to prioritize jobs over water and the environment.

The delay in the Firouzabad plant has had knock on effects, disrupting four other projects that aimed to use the facility’s output of ethylene, an ingredient used to make products such as polyester resins and adhesives. Those offtake plants would also have added to strains on the region’s scant water reserves.

“Delay is not a good word. After 12 years, we are practically facing a failed project,” said another project manager for the Firouzabad plant when contacted by Reuters.

Asking not to be identified, he said the proposed new coastal site was empty, flattened but with nothing yet built.

Despite the challenges, Iran has boosted refining capacity, announcing in February it was self sufficient in gasoline.

Iran’s petrochemical plants have capacity to make about 65 million tonnes of products a year, of which about 22.5 million tonnes is exported. The government aims to increase output to 91 million tonnes in two years and 130 million tonnes in five years. Iran’s refining capacity stands at about 2.23 million barrels per day, putting it behind regional leader Saudi Arabia.

AT A STANDSTILL

Social Security Investment Company, a state body with 200 subsidiaries and major energy investments, flagged problems facing the industry in a 2018 report including sanctions and “the drought and shortage of water for the inland refineries.”

It said some projects “were not economically feasible as they were initiated to create jobs in unsuitable locations.”

In northeast Iran, Khorasan Petrochemical Company has struggled to launch a fertilizer plant to produce 660,000 tonnes of urea, using gas as a feedstock. Five years on, the project is at a standstill despite securing $700 million in state support.

“Water resources for the project have not been provided and remain unclear,” Tamin Petroleum and Petrochemical Investment Company (TAPPICO), a major shareholder, wrote on its website.

Agriculture, a major employer in Iran, accounts for about 90% of Iran’s water usage, with industry using 10%. But any extra demand strains Iran’s depleting reserves. U.N. data indicate Iran is using 3.8 billion cubic meters of water a year more than is replaced, leading to a fast falling water table.

Nevertheless, some projects still go ahead even in areas where strains are acute.

Shazand refinery in central Iran had to drill deep wells to pump groundwater, state news agency IRNA reported in 2018, alarming environmentalists and sapping supplies from farmers.

When asked to comment, Shazand Petrochemical Company pointed to a statement published on its website that was published after Reuters made the request: “To reduce consumption of groundwater, the company has planned to use the reservoir of Kamal Saleh dam - when it is full - and wastewater of neighboring cities.”

The company said it was seeking a contractor for its water recycling project.

BBC NEWS - China economy: Third quarter growth misses expectations

China's economy grew at a slower pace than expected in the third quarter as it struggled with a US-led trade war and softer domestic demand.

In the three months to September, the economy expanded 6% from a year earlier, official figures showed.

The result fell just short of expectations for 6.1% growth for the period.

The slowdown comes despite government efforts to support the economy, including measures such as tax cuts.

The latest figures mark a further loss of momentum in the world's second largest economy, which had already seen growth languishing at its slowest pace in around three decades.

The rate remained within the government's target range for annual growth of between 6% and 6.5%.

The strength of the Chinese economy is closely watched as slowing growth can have far-reaching consequences for the global economy.

The country has become a key engine of growth in recent decades. Its healthy demand for a range of products, from commodities to machinery, has supported growth around the world.

Some analysts worry that a sharp slowdown in China could hurt an already sluggish world economy and increase the risk of a recession.

Julian Evans-Pritchard, senior China economist at Capital Economics, said pressure on the Chinese economy "should intensify in the coming months".

He said more intervention by policymakers to support the economy was likely "but it will take time for this to put a floor beneath economic growth".

What challenges does China face?

China has been fighting a trade war with the US for the past year, which has created uncertainty for businesses and consumers.

At the same time, it faces domestic challenges including a swine fever outbreak that has fuelled inflation and hit consumer spending.

Image copyrightGETTY IMAGES

Image captionChina accounted for 16% of global gross domestic product in 2018, according to the McKinsey Global Institute

This week the International Monetary Fund trimmed its 2019 growth forecast for China to 6.1% from 6.2% due to the long-running trade dispute and slowing domestic demand.

But there have been some signs of progress toward resolving the trade battle, with the US and China reaching a "phase one deal" earlier this month.

The government has sought to help the economy through tax cuts and by taking measures to boost liquidity in the financial system.

Still, some analysts say the government has become more cautious in providing stimulus amid growing concerns about China's rising debt pile.

Any analysis of China's economic data has to come with a caveat: Many economists believe the actual figures are much lower than what we are told, but it's the trajectory of growth and signalling from the government that you should pay attention to.

The fact that the growth figures have come in below market expectations indicate that China's economy is hurting more than many thought.

There were signs from China that these numbers were going to be worrying. Earlier this week, Premier Li Keqiang made the unusual move to warn local officials that they must do "everything" to make sure they hit growth targets for this year.

China's economy is being hit on three fronts: The US-led trade war, slowing demand at home and rising domestic challenges including the outbreak of swine fever that has dealt a huge blow to its pork farmers. It's also pushed up prices for consumers.

China's slowdown is nothing new. But these challenges pose new headaches for policymakers who are trying to manage the slowdown. The country's political stability depends on economic security - and over the last forty years, that's what the Communist Party has delivered. They're under pressure to keep that contract.

Reuters News - Explainer: Protesting Republicans say impeachment probe violates Trump's rights. Is that true?

WASHINGTON (Reuters) - Republican lawmakers on Wednesday stormed a hearing room at the U.S. House of Representatives where a Pentagon official was to testify in the impeachment probe of President Donald Trump, yelling that it was unfair and violated Trump’s rights.

The lawmakers were echoing objections made by White House Counsel Pat Cipollone in an Oct. 8 letter to top House Democrats that said Trump’s lawyers must be allowed to call and cross-examine witnesses, access evidence, and be afforded other “basic rights guaranteed to all Americans.”

The following examines the procedures followed in past impeachment investigations and explains why, contrary to Republican claims, the current inquiry does not violate Trump’s constitutional rights.

WHAT PROTECTIONS HAVE DEMOCRATS ALLOWED TRUMP SO FAR?

Members of three Democratic-led House committees have been interviewing government officials behind closed doors to try to build a case that Trump abused his power by pressuring Ukraine to investigate a rival - Democrat Joe Biden - for his personal political benefit.

While Democrats have led these interviews, Republicans who sit on the committees are also able to review documents and ask questions of the witnesses. Trump’s lawyers have been excluded.

Democrats have said they will hold public hearings soon in order to make their case against Trump to voters. House leaders have likened their investigation to a grand jury proceeding, a preliminary stage of a criminal case conducted in secret.

WHAT DOES TRUMP WANT?

Cipollone said the House has “not established any procedures affording the President even the most basic protections demanded by due process under the Constitution and by fundamental fairness” in violation of “every past precedent.”

In addition to granting Trump the right to access evidence, examine witnesses, and have counsel present at hearings, the committees must also disclose evidence that is favorable to him, he wrote.

Cipollone argued that Republican lawmakers should be allowed to issue subpoenas, which would enable them to present their own evidence and try to undermine the Democrats’ version of events.

The White House also said the investigation was not legitimate because the full House had not voted to authorize it.

WHAT HAS HAPPENED IN PAST IMPEACHMENT INQUIRIES?

In U.S. impeachment proceedings, the House investigates and votes to impeach, and the Senate holds a trial to determine guilt or innocence and whether the president stays in office.

Some of the protections requested by the White House were given to Bill Clinton and Richard Nixon, the two presidents in modern history to face impeachment probes.

The House allowed Nixon’s defense lawyers to respond to evidence and testimony during his impeachment inquiry. Nixon resigned from office in 1974 before being impeached, however.

Twenty-five years later, Clinton was afforded similar protections. Clinton was impeached by the House but not convicted by the Senate.

In both of those cases, the House also held a full vote to authorize an impeachment inquiry.

Some scholars have said that Clinton’s case was unique and cannot be likened to the current proceeding, however, because the Republicans who impeached Clinton relied on evidence laid out in a report by former independent counsel Kenneth Starr, who Democrats accused of political bias.

IS THE TRUMP IMPEACHMENT INVESTIGATION UNCONSTITUTIONAL?

According to several experts, no.

Frank Bowman, a law professor at the University of Missouri, said the U.S. Constitution gives the House the freedom to set its own ground rules for the process.

No full vote is needed to authorize an investigation and the House is not obligated to let Trump’s lawyers participate, Bowman said.

“Trump has no standing whatsoever to insist that the House do impeachment the way he would like it done,” Bowman said.

Bowman added that fairness to Trump is more of a concern if there is a trial in the Senate, which is currently controlled by Republicans. Like the House, the Senate has broad authority to set its own impeachment rules.

BBC News - Brexit deal acceptable, says top Barclays banker

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Prime Minister Boris Johnson's Brexit deal is "acceptable" and the country should push ahead with it, leading banker Sir Ian Cheshire has said.

Sir Ian, chairman of Barclays' UK operations, told the BBC that business leaders wanted to see certainty.

He added that it was "extremely unlikely" further negotiations with the EU would produce a different outcome.

However, some UK business groups were more sceptical, with one calling it "a step backwards for frictionless trade".

Confidence suffering

Speaking to the BBC's Today programme, Sir Ian said: "No deal is perfect, but this deal is actually doable,

"It is, I think, very frustrating to see what appears to be a protracted process when most business leaders would like to see some certainty and get on.

"The chances of yet another round of negotiations are extremely unlikely to yield anything significantly different and now the delay is beginning to affect consumer confidence, particularly investment confidence, and I think we have to push ahead and make the best of what we've got coming down the track."

However, Ian Wright, chief executive of the Food and Drink Federation, questioned Mr Johnson's deal.

He told the BBC: "What our members want most of all is the chance to scrutinise it. You wouldn't buy a house having only one week's notice of what the terms look like. You'd want a survey, you'd want to send in the experts, you'd want to know what the structure was and we think that's important now.

"We want to see the government's economic impacts and then we'll make a proper judgement."

'Inferior' deal

Mr Wright also expressed reservations about the impact of the deal on Northern Ireland.

"Many of my members already think that the changes in Northern Ireland will make it too expensive for them to do business between Great Britain and Northern Ireland under the terms that may come," he said.

"And the political declaration has all sorts in it which is aspirational, but we need to know what we're going to look at in terms of trade deals and in terms of regulatory alignment and we're worried on both those counts."

The chief executive of manufacturers' organisation Make UK, Stephen Phipson, said Mr Johnson's deal was "inferior in many respects to the deal we had with Theresa May's withdrawal agreement".

"This problem of uncertainty is really quite critical now," he told the BBC.

"We're seeing about 70% of manufacturers in the country not investing at the moment and critically, those European customers not coming to us for new orders."

The comments from business leaders came as the pound fluctuated in the first trading session since Saturday's vote by MPs to delay approval of the Brexit deal.

Sterling fell by 0.6% against the dollar at first, but then recovered to hit a five-and-a-half-month high as it climbed above $1.30.

Currency analysts say they expect the next strong movement in the pound to be when the Brexit deal is voted on in Parliament.

However, after Saturday's vote, many believe a no-deal Brexit is now less likely. US investment bank Goldman Sachs, which issues regular updates to its clients, now thinks there is a 5% chance of a no-deal Brexit, down from 10% previously.

BBC News - UK government borrowing up by a fifth over past six months

Image copyrightPublic sector borrowing has risen by a fifth during the first half of the financial year, official figures show.

Public sector borrowing has risen by a fifth during the first half of the financial year, official figures show.

Borrowing for the six months to September has now hit £40.3bn, up £7.4bn from the same period in 2018.

In the month of September, borrowing was £9.4bn - slightly lower than expected but still up from £8.8bn last year.

The figures raise questions about the chancellor's room to manoeuvre in next month's Budget.

Sajid Javid has said he is "turning the page on austerity" and promised big spending rises in his November statement.

But John Hawksworth, chief economist at PwC, said: "Today's data showed the UK public finances heading further into the red, with the deficit more than £7bn higher in the first half of this financial year than the same period last year.

"This borrowing overshoot will not make the chancellor's choices any easier as he heads towards his first Budget on 6 November."

According to the Office for National Statistics (ONS), the borrowing figures for September mark the first annual rise in that month for five years.

The increase comes despite the government receiving a £1.1bn dividend boost last month from part-nationalised lender Royal Bank of Scotland.

The ONS said borrowing was pushed higher due to seasonal payments of £2bn for winter fuel and £2.7bn of student loan write-offs - both of which are recorded in September each year.

Image copyrightPA MEDIA

Image captionSajid Javid is expected to loosen fiscal policy in the Budget

Mr Javid plans to set out new long-term fiscal rules in next month's Budget.

Currently the rules state that borrowing should remain below 2% of national income, but most expect him to relax this.

"September's better-than-expected public finance figures do not change this year's overarching themes of higher spending and borrowing. If anything, today's release will only encourage the chancellor to loosen fiscal policy at the Budget next month," said Thomas Pugh, UK economist at Capital Economics.

"We already know that the chancellor wants to review the fiscal rules in the Budget on 6 November, as there is very little chance of hitting the current ones.

"We don't know what the new fiscal rules will be, but they are likely to allow for a substantial loosening of fiscal policy at the Budget, which would support economic growth. Of course, whether this happens depends on whether there is a Brexit deal."