Reuters News - Global stocks end 2019 close to record highs

LONDON (Reuters) - Global equities drifted on Tuesday while the dollar ended 2019 on a subdued note following a buoyant year of stock market gains, driven in recent weeks by hopes of an imminent U.S.-China trade deal.

MSCI’s global share index was treading water but is on track for a 24% rise in 2019 - the index’s best performance in almost a decade.

In Europe, equity markets were mixed, with Britain's FTSE .FTSE slipping 0.4% while France's CAC .FCHI was little changed in thin trading. Germany's DAX was closed.

Bourses in Asia also diverged. China mainland stocks .CSI300 .SSEC gained 0.4% after data showed manufacturing activity in the world's second largest economy expanded for a second straight month in December.

The data added too optimism that trade tensions were easing between Beijing and Washington after White House trade adviser Peter Navarro said on Monday a Phase 1 deal would likely be signed in the next week. He cited a report that Chinese Vice Premier Liu He would visit the United States this week.

“This is the second print above 50 since the PMI dropped into contraction in May this year and could be early tentative signs of stabilisation of the sector,” MUFG’s Lee Hardman wrote in a note to clients.

“It is worth remembering however that the Phase One trade deal (which has not even been officially signed) has only recently become a more certain prospect and that it may still take some time for a rekindling of sentiment and investment to be reflected in the economic data.”

China’s gains built on Monday’s rally, which was driven by a combination of strong retail sales growth and hopes that a new benchmark for floating-rate loans could lower borrowing costs.

Meanwhile, Hong Kong stocks .HSI fell 0.5% as protesters geared up for pro-democracy rallies on New Year's Eve.

Markets in Japan and South Korea were closed for a holiday.

Following losses on Wall Street on Monday, U.S. stock futures showed some optimism ahead of the final session of the year, with S&P 500 e-minis up 0.1%.

In currency markets, the dollar index, which tracks the greenback against a basket of six major rivals, slipped 0.2% in its fourth straight session in the red.

The dollar continued to weaken against the yen for a third straight session, dropping 0.2% to 108.65 JPY= and hitting its lowest level since Dec. 12. The euro strengthened EUR= 0.06% to buy $1.1204.

Sterling GBP= hovered around the two-week high it hit on Monday against the dollar, though the possibility of a 'no-deal' Brexit at the end of 2020 kept any gains subdued. China's yuan CNH= strengthened 0.3% in offshore trading against the dollar.

Oil prices were little changed with U.S. crude at $61.67 a barrel and Brent crude at $66.83 per barrel. The global benchmark remains up 24% for the year.

Gold continued its rally on a weakening dollar. On the spot market, the precious metal was changing hands at $1,523.14 per ounce, up 0.5%. Gold prices have risen nearly 20% this year.

Reporting by Karin Strohecker, additional reporting by Andrew Galbraith in Shanghai

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BBC News - Bank of England chief Mark Carney issues climate change warning

The world will face irreversible heating unless firms shift their priorities soon, the outgoing head of the Bank of England has told the BBC.

Mark Carney said the financial sector had begun to curb investment in fossil fuels – but far too slowly.

He said leading pension fund analysis "is that if you add up the policies of all of companies out there, they are consistent with warming of 3.7-3.8C".

Mr Carney made the comments in a pre-recorded BBC Radio 4 Today interview.

The interview, by presenter Mishal Husain, is one of several items on the programme which are focusing on climate change, on the day the show is guest edited by environmental campaigner Greta Thunberg.

Mr Carney added that the rise of almost 4C was "far above the 1.5 degrees that the people say they want and governments are demanding”.

Scientists say the risks associated with an increase of 4C include a nine metre rise in sea levels - affecting up to 760 million people – searing heatwaves and droughts, and serious food supply problems.

Mr Carney, who will next year start his new role as United Nations special envoy for climate action and finance, continued: “The concern is whether we will spend another decade doing worthy things but not enough... and we will blow through the 1.5C mark very quickly. As a consequence, the climate will stabilise at the much higher level.”

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Speaking to the Today programme, he re-iterated his warning that unless firms woke up to what he called the climate crisis, many of their assets would become worthless.

“If we were to burn all those oil and gas [reserves], there’s no way we would meet carbon budget,” he said. “Up to 80% of coal assets will be stranded, [and] up to half of developed oil reserves.

“A question for every company, every financial institution, every asset manager, pension fund or insurer: what’s your plan?

“Four to five years ago, only leading institutions had begun to think about these issues and could report on them.

“Now $120tn worth of balance sheets of banks and asset managers are wanting this disclosure [of investments in fossil fuels]. But it’s not moving fast enough.”

Image copyrightGETTY IMAGES

Climate campaigners Extinction Rebellion question whether the capitalist system can halt climate change.

Mr Carney said capitalism had a vital role in raising funding for clean technologies. But he added that it had to be tempered by government-imposed incentives, rules and prohibitions of the most damaging activities.

Climate change was what he called a “tragedy of the horizon”, because the decision-making time horizon of investment managers is between two and 10 years.

“In those horizons there will be more extreme weather events, but by the time that the extreme events become so prevalent and so obvious it’s too late to do anything about it," he said.

“We look to political leaders to start addressing future problems today.”

He told those questioning the consensus on climate change: “We can’t afford on this one to have selective information, spin, misdirection… It needs to be absolutely clear because we are all in on it.

“To deliver, there needs to be shared understanding about what’s necessary. [But] it is reasonable for there to be debates at the margin about where does the role of the state stop - and what’s the role of markets.”

Mr Carney applauded the UK government for hosting next year’s vital global climate conference in Glasgow. He said success was “vital”.

Stress tests for businesses

Under Mr Carney’s leadership the Bank of England recently launched a “stress test” to determine which firms and sectors would be worst-hit by climate change.

The question is how fast financial institutions can change course.

Recently, investment bank Goldman Sachs ruled out future finance for oil drilling or exploration in the Arctic.

The bank said it would not invest in new thermal coal mines (for power stations) anywhere in the world.

It also announced plans to help its clients manage climate impacts by selling weather-related catastrophe bonds.

Insurance giant AXA said it would stop insuring any new coal construction projects, and totally phase out existing insurance and investments in coal in the EU, by 2030.

Nest, the workplace pension scheme set up by the government, is testing whether it can invest its Climate Aware Fund in firms compatible with a 1.5C warming.

Environmentalists applaud the moves but say they don’t go remotely far enough. Scientists say nations must cut emissions five-fold to avoid a temperature rise over 1.5C.

'Dire consequences'

Meanwhile, the heads of two key environmental bodies have warned that 2020 is the "last chance" to bring the world together to tackle climate change to protect communities and nature.

Climate change and damage to nature are already having "dire consequences", the leaders of government agencies Natural England and the Environment Agency said.

In an article on the Green Alliance website, Natural England chairman Tony Juniper and the Environment Agency's Emma Howard Boyd pointed to the recent flooding which saw hundreds evacuated at Fishlake, Doncaster, with some people still out of their homes.

And a report in October on the state of nature in the UK found two-fifths (41%) of the country's wildlife species had declined over the past 50 years and 13% of the species tracked were threatened with extinction in England.

"It's clear that 2020 is our last chance to bring the world together to take decisive action on climate change in order to protect our communities and reverse the alarming loss of wildlife we have witnessed in recent years," Mr Juniper and Ms Howard Boyd wrote.

Reuters News - Recession, robots and rockets: another roaring 20s for world markets?

LONDON (Reuters) - Helicopter cash, climate crises, smart cities and the space economy — investors have all those possibilities ahead as they enter the third decade of the 21st century.

They go into the new decade with a spring in their step, after watching world stocks add over $25 trillion in value in the past 10 years and a bond rally put $13 trillion worth of bond yields below zero.

They also saw internet-based firms transform the way humans work, shop and relax. Now investors are positioning for the tech revolution’s next 10 years.

Could we see a repeat of the roaring twenties, as the 1920s were known — years of prosperity, technological innovation and such social developments as women winning the right to vote?

Possibly. But there’s unease, along with all the euphoria. The current economic cycle is already the longest in U.S. history and a recession looks inevitable in the new decade — which also will mark 100 years since the Wall Street crash of 1929.

And solutions may need to be unconventional, even more so than the extraordinary policies of negative interest rates and bond-buying that eased the post-2008 global funk.

With those policies maxed out, “in the 2020s it seems inevitable that a world of helicopter money awaits,” Deutsche Bank predicts.

That would entail central banks or governments providing citizens with large amounts of money, as though it was being dropped from helicopters, a strategy rejected even by the unorthodox policymakers of the 2010s.

Another radical option under discussion is modern monetary theory, when governments create and spend as much money as needed, so long as inflation stays low.

“Central banks have effectively invited governments to experiment with more unconventional policies,” Deutsche said. However, those policies may pile up even more global debt, already at record highs.

So what will markets do?

A decade of rock-bottom interest rates didn’t revive growth and inflation in developed nations, but they certainly inflated markets, as prices for bonds, equities and real estate show.

The inequality they spawned have also triggered a widespread backlash against globalization. The result is a de-globalizing world, or as Morgan Stanley puts it, “slow-balisation”.

The bank expects tech investments to outperform, in particular smaller internet firms in China, as protectionism hurts larger rivals.

But it predicts less exciting returns — “a lower and flatter frontier compared to prior decades, and especially compared to the ten years post-GFC (global financial crisis).”

GLOBAL WARMING, PEOPLE AGEING

As market returns cool, the planet will continue to heat up. Carbon emissions, temperatures, sea levels and thus climate-induced poverty and immigration are expected to rise.

That should increasingly lead asset managers to seek alternatives to pollutants, especially coal, use of which must cease in OECD nations by 2030 for the Paris Agreement to be met.

BofA expects clean energy and electric-vehicle companies to emerge as winners, estimating the clean energy market to be already worth $300 billion.

Ageing populations are another challenge, making demographics a key investment criterion. Deutsche Bank names Ireland, Rwanda, Ghana, Botswana and Laos as among the 22 nations in line for a “demographic dividend”, benefiting from growing working-age populations.

It also backed sectors like e-commerce as Generation Z, those who will be in their mid 20s to early 30s by 2030, exercise growing spending power.

But in some countries, affluent older spenders will still carry clout. By 2030, over 80s will represent 5.4% of the U.S. population, up from 3.7% in 2015, driving demand for retirement homes, healthcare and long-life innovations.

“Immortality may prove the most interesting secular theme in the 2020s,” BofA predicts.

TECH TIPPING POINTS

A World Economic Forum survey in 2017 predicted a series of "technological tipping points" for the coming decade. They included 3D-printed cars, driverless vehicles and the first artificial-intelligence machine on a company's board.

The ‘20s could be an era of smart cities, where big data and robotics ensure better governance, health and connectivity, UBS forecast. It expects annual spending to turn cities smart will reach $2 trillion in 2025 and internet-connected devices will multiply more than four-fold to 46 billion.

To take advantage of these shifts, investors will focus on areas such as autonomous vehicles — automated forklift shipments will grow to 455,000 in 2030 from 4,000 next year, ABI Research said.

Finally, advances in rocket and satellite technology are opening investment access to the final frontier. The first exchange-traded fund dedicated to the space industry opened in 2019.

UBS sees "parallels with how the global internet ... opened up vast opportunities at the turn of the century." It predicts the "space economy" tmsnrt.rs/2YpSX6Z will reach $1 trillion in the next couple of decades, from $340 billion now.

The bank backs existing listed aerospace, satellite and communications companies and new space start-ups in private markets.

Reporting by Tom Arnold and Elizabeth Howcroft; editing by Sujata Rao

Our Standards:The Thomson Reuters Trust Principles

BBC News - Russia 'successfully tests' its unplugged internet

Image copyrightREUTERS

Image captionThe net independence plan is seen as a way for Russia's government to get more control over online life

Russia has successfully tested a country-wide alternative to the global internet, its government has announced.

Details of what the test involved were vague but, according to the Ministry of Communications, ordinary users did not notice any changes.

The results will now be presented to President Putin.

Experts remain concerned about the trend for some countries to dismantle the internet.

"Sadly, the Russian direction of travel is just another step in the increasing breaking-up of the internet," said Prof Alan Woodward, a computer scientist at the University of Surrey.

"Increasingly, authoritarian countries which want to control what citizens see are looking at what Iran and China have already done.

"It means people will not have access to dialogue about what is going on in their own country, they will be kept within their own bubble."

How would a domestic internet work?

The initiative involves restricting the points at which Russia's version of the net connects to its global counterpart, giving the government more control over what its citizens can access.

"That would effectively get ISPs [internet service providers] and telcos to configure the internet within their borders as a gigantic intranet, just like a large corporation does," explained Prof Woodward.

So how would the government establish what some have dubbed a "sovereign Runet"?

Countries receive foreign web services via undersea cables or "nodes" - connection points at which data is transmitted to and from other countries' communication networks. These would need to be blocked or at least regulated.

This would require the co-operation of domestic ISPs and would be much easier to achieve if there were just a handful of state-owned firms involved. The more networks and connections a country has, the more difficult it is to control access.

Then Russia would need to create an alternative system.

In Iran, the National Information Network allows access to web services while policing all content on the network and limiting external information. It is run by the state-owned Telecommunication Company of Iran.

One of the benefits of effectively turning all internet access into a government-controlled walled garden, is that virtual private networks (VPNs), often used to circumvent blocks, would not work.

Another example of this is the so-called Great Firewall of China. It blocks access to many foreign internet services, which in turn has helped several domestic tech giants establish themselves.

Russia already tech champions of its own, such as Yandex and Mail.Ru, but other local firms might also benefit.

The country plans to create its own Wikipedia and politicians have passed a bill that bans the sale of smartphones that do not have Russian software pre-installed.

Technical challenges

One expert warned that the policy could help the state repress free speech, but added that it was not a foregone conclusion that it would succeed.

"The Russian government has run into technical challenges in the past when trying to increase online control, such as its largely unsuccessful efforts to block Russians from accessing encrypted messaging app Telegram," Justin Sherman, a cyber-security policy fellow at the New America think tank, told the BBC.

"Without more information about this test though, it's hard to assess exactly how far Russia has progressed in the path towards an isolatable domestic internet.

"And on the business front, it remains to be seen just how much domestic and foreign pushback Russia will get."

Local news agencies, including Pravda, reported the deputy head of the Ministry of Communications had said that the tests of the scheme had gone as planned.

"The results of the exercises showed that, in general, both the authorities and telecoms operators are ready to effectively respond to emerging risks and threats, to ensure the stable functioning of both the internet and unified telecommunication network in the Russian Federation," said Alexey Sokolov.

The state-owned Tass news agency reported the tests had assessed the vulnerability of internet-of-things devices, and also involved an exercise to test Runet's ability to stand up to "external negative influences".

BBC News - Bank of England keeps interest rates on hold

Image copyrightPA MEDIA

The Bank of England has kept interest rates on hold at 0.75% but indicated it may cut the cost of borrowing if global economic growth fails to recover or Brexit uncertainties persist.

It said the UK economy was expected to pick up from its current weakness.

However, the Bank said it would monitor companies' and households' reactions to Brexit as well as global growth.

The Bank's Monetary Policy Committee (MPC) voted 7-2 in favour of keeping the official rate on hold.

"If global growth fails to stabilise or if Brexit uncertainties remain entrenched, monetary policy may need to reinforce the expected recovery in GDP growth and inflation," the committee said in a statement.

Third-quarter gross domestic product (GDP) growth of 0.3% was "a little weaker" than the MPC expected at its November meeting, when members also voted 7-2 to keep rates on hold.

It said household spending continued to grow steadily, but business investment and export orders had remained weak.

The Bank predicted fourth quarter growth of 0.1% which again was a weaker outlook than at its last meeting.

Image copyrightGETTY IMAGES

The Bank's agents around the UK, who monitor regional economic activity, gave the construction sector its lowest score in six-and-a-half years.

The agents also highlighted falling manufacturing exports, with the car-making sector suffering one of the biggest declines.

'Pressure'

The weak economy meant companies could not fully pass on higher costs to their customers even as those costs rose, squeezing profit margins.

"All sectors were affected, but margins were most squeezed in construction and consumer facing sectors," the MPC said.

For those consumer-facing firms, the pressure on margins was heightened by the shift towards online shopping, higher business rates and the rise in the National Living Wage, it added.

That was one factor adding to weak investment. "Investment intentions remain depressed by slower global growth and political uncertainty," the MPC said.

However, it also said that if global growth did stabilise and Brexit uncertainties faded then the next move in interest rates may be up.

Outlook 'exceptionally cloudy'

Economists were divided over the direction of rates.

Dean Turner, an economist at UBS Wealth Management, said: "After last week's election result, the short-term clarity we have on Brexit could give a lift to economic sentiment, especially for businesses. A modest fiscal easing in the forthcoming budget could also push things along a little.

"Overall, though, as attention turns to the December 2020 end of transition deadline, the mood will likely remain subdued and growth weak. We expect that the committee will move further towards a rate cut in 2020 and a quarter point easing in May."

But Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "All told, we still think that interest rates are much more likely to rise next year than to fall.

"But as both the identity of the next [Bank of England] Governor and the willingness of the Prime Minister to sacrifice the economy to achieve Brexit by his timetable are unknown, the outlook for monetary policy remains exceptionally cloudy."