Reuters News - Global stocks dip but clinch fifth month of gains; dollar soft

 NEW YORK (Reuters) - A gauge of global stocks pulled back from a record high on Monday but locked in a fifth straight month of gains while the dollar remained weak as investors adjust to the policy shift outlined by Federal Reserve Chair Jerome Powell last week.

U.S. stocks were mostly lower, with the Dow Industrials and the S&P 500 in the red, while the Nasdaq rose solidly. The S&P gained more than 7% for the month to notch its best August since 1986 in what is traditionally a softer month for stock performance.

The Nasdaq fared even better than the S&P for the month, up nearly 10% as it rallied for a fifth straight month.

“After such a strong summer run we’re reverting back to the old pandemic playbook, so we see tech outperforming,” said Mona Mahajan, senior U.S. investment strategist at Allianz Global Investors in New York. “Really, that’s a defensive move as people think about stay-at-home more as we’re heading toward that fall season.”

Fed Vice Chair Richard Clarida on Monday expanded on Powell’s comments from last week, saying that with the U.S. central bank’s new policy view, a low rate of unemployment does not on its own trigger higher interest rates. Last week, the Fed said its new strategy plan is to use higher inflation when the economy is robust to offset the impact of periods of weaker prices.

Monday marked the day first trading day for the revamped Dow, with Salesforce.com (CRM.N), Amgen Inc (AMGN.O) and Honeywell International Inc (HON.N) joining the 30-component index, replacing Exxon Mobil Corp (XOM.N), Pfizer Inc (PFE.N) and Raytheon Technologies Corp RTX.N. Honeywell ended the session lower while a move higher late in the day pushed Salesforce and Amgen to the plus side.

The Dow Jones Industrial Average .DJI fell 227.7 points, or 0.79%, to 28,426.17, the S&P 500 .SPX lost 8.04 points, or 0.23%, to 3,499.97, and the Nasdaq Composite .IXIC added 79.82 points, or 0.68%, to 11,775.46.

The dollar edged lower against a basket of major currencies on the day and suffered a fourth straight monthly decline.

In Europe, stocks closed lower on the day as financial shares were weighed down by soft inflation data in Germany and Italy, but managed to close higher for the month. Trading in London was closed for a public holiday.

MSCI’s world equity index .MIWD00000PUS rose 5.9% in August for a fifth straight month of gains as massive monetary and fiscal stimulus outweighs concern about the outlook for a world economy battered by the coronavirus. The index hit a record of 587.77 on Monday before reversing course on the day.

The pan-European STOXX 600 index lost 0.62% and MSCI’s gauge of stocks across the globe .MIWD00000PUS shed 0.30%.

For a graphic on MSCI’s World Stock Index:

The expectations for the Fed to keep interest rates lower for an extended period again kept the dollar in check, with a fourth straight month of declines, marking its longest loss streak since 2017. The greenback, as measured against a basket of six other major currencies, hit a low of 91.989, its lowest level since May 1, 2018.

The dollar index =USD fell 0.075%, with the euro EUR= up 0.29% to $1.1938.

Benchmark 10-year notes US10YT=RR last rose 6/32 in price to yield 0.7113%, from 0.729% late on Friday.

Oil prices gave up earlier gains. Brent crude oil dipped from a five-month high, as global demand struggled to regain levels prior to the coronavirus pandemic.

U.S. crude CLc1 settled down 0.84% at $42.61 per barrel and Brent LCOc1 was at $45.28, down 1.16% on the day.

Reporting by Chuck Mikolajczak; Additional reporting by Sinéad Carew; Editing by Leslie Adler

Our Standards:The Thomson Reuters Trust Principles.

Reuters News - Wall Street Week Ahead: Value bulls bang drum for cheap stock resurgence on Fed, vaccine hopes

 NEW YORK (Reuters) - As U.S. stocks hit record highs, some investors are betting the market’s future gains will be increasingly driven by some of its lesser-loved companies.

Value stocks - shares of economically sensitive companies trading at multiples that are usually below those found on growth names - have been among the laggards in the market’s blistering rally from its March lows.

Some investors believe the relative cheapness of value stocks, which include energy companies, banks and industrial conglomerates, will catapult them to leadership if the nascent U.S. economic revival gains momentum, shifting focus from the big technology-related stocks that have led markets during the coronavirus pandemic.

The Russell 1000 Value index trades at almost 18 times earnings, up from 14 a year ago, and is up some 45% since late March. By comparison, the Russell 1000 Growth index trades at a multiple of 31, up from 22, and has gained over 70% in the same period.

“It’s an important part of validating the market’s rise, to have cyclicals and value sectors move,” said Nicholas Colas, co-founder of DataTrek Research.

“At the end of the day I think value can outperform, but it’s going to be very episodic.”

(Graphic: Russell 1000 Forward P/E ratios - here)

Hopes of economic healing got a second wind Thursday, when Federal Reserve Chairman Jerome Powell rolled out a sweeping policy rewrite that puts more focus on fighting unemployment than controlling inflation, sending shares of banks like Wells Fargo and Citigroup higher on the day.

Investors in the coming week will be keeping a close eye on Friday’s U.S. non-farm payrolls data, looking for a snapshot of how the country’s economic recovery is faring.

Other arguments for a value resurgence have been fueled by signs of progress on a vaccine against COVID-19, which some investors believe could accelerate business reopenings and a return to in-person schooling across the United States.

U.S. President Donald Trump has said a vaccine for the novel coronavirus could be available before the Nov. 3 presidential election, sooner than most experts anticipate.

Some analysts, including those at Goldman Sachs, believe a vaccine could be approved as early as the end of this year.

That could take the S&P 500 as high as 3,700 by year-end and spur a rotation to value names, especially if the news flow regarding a vaccine continues to be encouraging, Goldman’s analysts said earlier this month. The index recently hovered near 3,500.

Plenty of market participants doubt value will return anytime soon, or that such a move can be timed profitably.

Value sectors such as retail have struggled for years with lackluster earnings or business models that are being disrupted in a shift to a more tech-driven world, a process that accelerated during the coronavirus pandemic.

“Valuation alone doesn’t drive stock prices. It’s the combination of valuation and improving fundamentals,” said Richard Bernstein, chief executive officer and chief investment officer at Richard Bernstein Advisors in New York.

“For value to outperform, one typically needs profit growth to accelerate. That’s not happening yet,” he said.

BofA Global Research points out that value stocks have led during the recovery from every one of the last 14 recessions.

Yet it also warns of “value traps” - stocks whose prices are falling faster than earnings are deteriorating. Such stocks have underperformed broader markets by four percentage points a year since 1997, the bank said.

BofA’s model identified energy and brick-and-mortar retail as sectors where value traps can be found.

(Graphic: Performance of Russell 1000 Growth v. Value - here)

Kim Forrest, chief investment officer at Bokeh Capital Partners, believes resurgences in value may be a thing of the past.

Technology has transformed the way companies deal with their inventory and altered the business cycle, sapping the benefits cyclical companies would receive from an upswing in growth, she said.

“There are some dinosaurs that don’t get that the comet has hit and the (investment) environment has changed,” said Forrest.

Others, like Bill Smead of Smead Capital Management, remain hopeful.

An eventual rise in inflation could boost the shares of energy companies, banks and home builders, which have tended to perform better when consumer prices trend higher, Smead said in a note to investors.

Even longtime value bulls like Smead can have their fortitude tested, however.

“We are patient, but that patience doesn’t last forever,” he wrote.

Reporting by Rodrigo Campos; Editing by Ira Iosebashvili and Andrea Ricci

Our Standards:The Thomson Reuters Trust Principles.

BBC News - No plan for a return to the office for millions of staff

 Fifty of the biggest UK employers questioned by BBC have said they have no plans to return all staff to the office full-time in the near future.

Some 24 firms said that they did not have any plans in place to return workers to the office.

However, 20 have opened their offices for staff unable to work from home.

It comes as many employees return to work from the summer holidays with the reality of a prolonged period of home working becoming increasingly likely.

The BBC questioned 50 big employers ranging from banks to retailers to get a sense of when they expected to ask employees to return to the office.

One of the main reasons given for the lack of a substantial return was that firms could not see a way of accommodating large numbers of staff while social distancing regulations were still in place.

Many companies said they were offering choice and flexibility to those who want to return, particularly in the banking and finance sectors.

A few firms have already announced they have no plans to return to the office until late autumn, and Facebook has said it does not plan a return of employees until July 2021.

Some smaller businesses are deciding to abandon their offices altogether. Tara Tomes runs a PR agency with an office in the heart of Birmingham's business district.

Her team of eight cannot fit in the space they have if they are to obey social distancing guidelines and she will not be renewing the office lease in September.

"I personally don't want to force my team back onto public transport," she told the BBC.

"Not having four walls around us won't change the dynamic or culture of the team. If anything it will make us more pioneering in the way the world of work is going."

She said that the money saved on rent and utilities and the time spent not commuting were other benefits to giving up the office.

Mayor of the West Midlands Andy Street acknowledged that the challenges facing city centre businesses were grave but said he was hopeful the climate would gradually improve.

"This is undeniably a very difficult situation for businesses that thrive on the back of the big office occupiers being there. What we are trying to do is steadily build confidence that it is safe to return to the city centre."

He said Birmingham's transport system was currently carrying about 20% of pre-covid numbers but that he hoped this would rise to 50% over the autumn.

Still, that means that city centre footfall - which is the lifeblood of businesses that rely on office workers and commuters - would in the best case scenario be half of what it is in normal times.

Image captionNaomi says the pandemic has been 'devastating' for her business

That may be cold comfort to Naomi and her brother James who opened up a new coffee shop in the heart of Birmingham's business district earlier this year. They are now getting less than a fifth of the trade they were banking on.

"It's been devastating really," Naomi told the BBC. "Office workers are absolutely critical to us. We are hoping things improve in September but if they don't we will have to rethink the whole business."

It is, however, too soon to announce the death of the office, according to Rob Groves from office developer Argent, which has just completed the construction of 120,000 feet of office space in Birmingham's Chamberlain Square.

While he admitted that some would-be tenants were pressing the pause button, he also insisted there would always be a need for a workplace where people could congregate and collaborate.

"I'd like to challenge people saying they will never need an office and ask them in 12-18 months time whether that was the right decision or just a reaction to what's happening now."

Image captionMatthew Hammond, chairman of the Midlands region for PwC

One of Argent's blue chip tenants agrees. Accounting and consultancy firm PwC has just moved into the property next door. It is supposed to house 2,000 people but is currently catering to just 150 each day.

Nevertheless, Matthew Hammond, chairman of the Midlands region for PwC, said that the office was a must have, particularly for younger workers.

"We have colleagues who may be working at the end of their bed or on a return unit in their kitchen. That is not sustainable or healthy for the longer term. As employers we invest a huge amount in providing the right environment, the right seating, the right technology so people can be at their most productive."

Not everyone has deep enough pockets to afford such flexible working spaces. While many employees want the option of coming to the office, many now see home working as a right, according to Midlands recruitment specialist Kam Vara.

"For many candidates it's now a deal-breaker if there isn't an option for home working, and some are saying they want 100% home working with no physical contact with the office whatsoever."

The knock-on effects of these changes to the world of work could be enormous and long lasting. If people don't need to be in the office, they can be anywhere. And the cost of commuter season tickets and expensive suburban housing within commuting distance of big cities is an expense employers could deduct.

Mayor of the West Midlands Andy Street is optimistic that what we are witnessing is simply an age old tale of urban evolution, with Covid-19 holding down the fast forward button.

"The calling of the death of the office is very premature. Cities have repurposed themselves before over decades... the coronavirus has just speeded it up."

That may be so, but the short term shock to the city business model feels more like a cardiac arrest than a gentle evolution. And the reluctance on the part of both workers and employers to return to the office poses a grave economic threat to the future of city centres.

Reuters News - Asian stocks boosted by fresh U.S.-China trade hopes

 SINGAPORE/HONG KONG (Reuters) - Asian stock markets were mostly higher on Tuesday after the U.S and China indicated progress in trade talks, and as hopes of new coronavirus treatments boosted broader sentiment among global investors.

MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.1% and was trading just below a two-year high.

Japan’s Nikkei rose 1.4%, while banking stocks led Australia’s S&P/ASX 200 up 0.34%.

Futures suggest a positive start to Europe’s trading day, with Euro STOXX 50 futures up 0.4% and FTSE futures up 0.3%. S&P 500 futures extended modest gains in Asia and were last up 0.4%.

The upbeat sentiment in Asia on Tuesday followed reports that top U.S. and Chinese officials see progress in resolving concerns around the Phase 1 trade deal reached between the two countries in January.

U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin spoke with Chinese Vice Premier Liu He, the U.S. Treasury said in a statement on Tuesday, during a “regularly scheduled call”.

China’s commerce ministry said in a statement there had been “constructive dialogue”, which followed the U.S. Treasury declaring that “both sides see progress”.

Markets have worried that rising tensions between Washington and Beijing over a host of issues could scupper the deal.

“This is consistent with market expectations of the Phase 1 deal staying healthy and likely to hold even as U.S.-China tensions flare up along non-trade dimensions - technology, access to capital, geopolitics,” Citigroup analysts said in a research note.

Bucking the regional rally, however, were Hong Kong and China markets, with the Hang Seng slipping 0.4% in the afternoon session while the Shanghai Composite gave up earlier gains to fall 0.32%.[.SS]

Ord Minnett investment advisor John Milroy said equities market sentiment remained driven by elevated global liquidity.

“The strong rebound in markets continues to be driven by the large amounts of money governments and central banks keep throwing at the system,” Milroy said.

“There is no reason to expect markets to stop anytime soon even in the face of reduced global activity levels. Investors keep looking ahead with markets trading well above historical price to earnings levels.”

Markets have also been supported by broader optimism about medical solutions to end the coronavirus pandemic. U.S. regulators on Sunday authorised the use of blood plasma from recovered COVID-19 patients as a treatment option, helping the S&P 500 1% higher to another record close overnight.

Shares of AstraZeneca also rose on a Financial Times report that the U.S. government was considering fast-tracking its experimental vaccine.

That seemed to overshadow a rise in coronavirus cases in Europe and the first documented case of human re-infection with COVID-19, where a man in Hong Kong caught the virus again some four months after first being infected.

In currency markets, the dollar edged higher, defying pressure from a gain in stocks that often leads investors to sell dollars for riskier currencies. [FRX/]

Investors are awaiting a Thursday speech from Federal Reserve Chairman Jerome Powell and expect he might address the future approach to inflation, possibly allowing it to run hotter than 2% to make up for years of undershooting.

The dollar also found support from an overnight rise in yields. That kept the euro to $1.18 and the Aussie at $0.7170 in Asian trade.

In commodity markets, oil clung to overnight gains after storms disrupted U.S. production. Brent crude futures firmed 8 cents, or 0.2%, to $45.21 a barrel and U.S. crude dipped to $42.52.

The stronger dollar held gold to $1,929.6 an ounce. A light data calendar in Asia has investors looking to Germany’s IFO business survey due at 0800 and U.S. consumer confidence data at 1400 GMT.

Reporting by Tom Westbrook and Scott Murdoch; Editing by Sam Holmes and Kim Coghill

Our Standards:The Thomson Reuters Trust Principles.

BBC News - UK government spending on virus measures pushes debt to £2 trillion

 

Image copyrightGETTY IMAGES

UK government debt has risen above £2 trillion for the first time amid heavy spending to support the economy amid the coronavirus pandemic.

Spending on measures such as the furlough scheme means the debt figure now equals the value of everything the UK produces in a year.

Total debt hit £2.004tn in July, £227.6bn more than last year, said the Office for National Statistics (ONS).

Economists warned the situation would worsen before improving.

• Where do governments borrow money?

It is the first time debt has been above 100% of gross domestic product (GDP) since the 1960-61 financial year, the ONS said.

The July borrowing figure - the difference between spending and tax income - was £26.7bn, down from a revised £29.5bn in June.

It was the fourth highest borrowing in any month since records began in 1993. The three higher figures were the previous three months.

Those are big figures. What do they mean?

Ruth Gregory, senior UK economist at Capital Economics, said July's borrowing figure was "another huge sum and pushes borrowing in the year to date to £150.5bn".

"That is close to the deficit for the whole of 2009-10 of £158.3bn, which was previously the largest cash deficit in history, reflecting the extraordinary fiscal support the government has put in place to see the economy through the crisis."

Chancellor Rishi Sunak said: "This crisis has put the public finances under significant strain as we have seen a hit to our economy and taken action to support millions of jobs, businesses and livelihoods.

"Without that support, things would have been far worse.

"Today's figures are a stark reminder that we must return our public finances to a sustainable footing over time, which will require taking difficult decisions."

How did it get to this?

£2 trillion is, obviously, a large amount of money. But in the circumstances, it was inevitable that government debt would cross that threshold.

Tax revenue has been hit hard by the pandemic as people and businesses earn and spend less. Government spending on programmes such as the furlough scheme has headed upwards. So the total amount owed has also increased, rapidly.

But the government's borrowing costs - the interest rates it has to pay - are low. And some of the extra borrowing in effect ends up with the Bank of England, which has been buying government debt (known as gilts) in the financial markets under its quantitative easing (QE) programme.

QE is not specifically intended to ease the government's financial strains - it's meant to stimulate the economy - but it does have that effect.

In relation to annual national income, debt has crossed the 100% level. There's no doubt the government would rather that had not happened.

But by that measure, government debt is still far short of the highs it reached in the aftermath of wars - the two world wars and the Napoleonic wars more than 200 years ago.

Is it surprising?

Carl Emmerson, deputy director of the Institute for Fiscal Studies, told the BBC's Today programme it was "not really a surprise" that the government was borrowing a lot of money, given the size of its efforts to support people hit by the pandemic.

However, he added that interest rates were so low that the government was actually spending less on servicing its debts than had been forecast before the coronavirus crisis.

The ONS cautioned that borrowing estimates were subject to "greater than usual uncertainty".

It said the June figure had been revised down by £6bn, largely because of stronger than previously estimated tax receipts and National Insurance contributions.

Should we be worried?

Analysts reckon there is worse to come, but that things will get better after that.

However, the sheer size of the debt means that the Treasury will be wary of doing anything that might make it any worse - and that means there may be less economic support for ordinary people in future.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, noted that borrowing remained on course this year to hit its highest share of GDP since World War Two.

"Looking ahead, borrowing looks set to jump temporarily in August, as the government makes the second and last Self-Employment Income Support Scheme payment and funds the Eat Out to Help Out scheme," he said.

"Thereafter, it will decline, as the Coronavirus Job Retention Scheme, which cost £6.9bn to operate in July, is wound down ahead of its closure at the end of October, and firms make a huge VAT payment in March, for sales generated in Q2, as well as in that month."

However, he added that with borrowing for this financial year expected to be about 17% of GDP, the chancellor was likely to be "relatively cautious" in his autumn Budget.

BBC News - Brexit: UK-EU trade deal 'seems unlikely' says Michel Barnier

 A post-Brexit trade deal between the UK and the EU "seems unlikely" at this stage, the bloc's negotiator has said.

Speaking after the latest round of talks, Michel Barnier said he was "disappointed" and "concerned".

His UK counterpart David Frost spoke of "little progress", amid differences on fisheries policy and state aid rules.

The EU has said it would like to agree a deal by October so it can be approved by the European Parliament before the post-Brexit transition period expires.

The transition period ends on 31 December and, if a deal has not been secured by then, the UK would have to trade with the EU on WTO (World Trade Organization) terms.

This means most UK goods would be subject to tariffs until a free trade deal was ready to be brought in.

The UK has said it will not extend talks if an agreement cannot be reached by the December deadline.

• UK-EU trade deal some way off, both sides say
• What are the sticking points in the trade talks?
• What's happening in post-Brexit trade talks?

In a statement released after the seventh round of talks, Mr Frost said the EU had made it "unnecessarily difficult" to make progress by insisting that differences over state aid and fisheries have to be resolved before "substantive work can be done in any other area of the negotiation, including on legal texts".

'Sovereign control'

In a bid to break the deadlock, the UK has presented the EU with a draft legal text for a free-trade agreement.

Mr Frost, who reports directly to Prime Minister Boris Johnson, said the UK was seeking a deal which "ensures we regain sovereign control of our own laws, borders, and waters".

"When the EU accepts this reality in all areas of the negotiation, it will be much easier to make progress," he said.

Image copyrightGETTY IMAGES

Image captionFishing rights is one of the areas where significant differences remain

A senior UK negotiating official added that a deal was "still possible but not that easy to get there".

They also said it was "frustrating" that the EU "says Brexit means Brexit... yet they want us to continue with arrangements as though we were still [an EU] member".

"Frustrating that they want us to move towards their position on fishing and state aid before doing anything else."

'Wasting time'

Speaking at a press briefing in Brussels, Mr Barnier accused the UK side of "wasting valuable time", suggesting the draft text was "useful" but downplaying its significance in reaching any agreement.

"Too often this week it felt as if we were going backwards more than forwards," he said.

"Given the short time left, what I said in London in July remains true, today at this stage, an agreement between the UK and EU seems unlikely."

• Brexit: What is a level playing field?
• Who really owns UK fishing rights?

While there had been progress on energy co-operation, participation in union programmes and anti-money laundering, on the subject of access to UK and EU fishing waters, there had been "no progress whatsoever".

He also said the EU's demand for a level-playing field - one of the other sticking points in negotiations - was "a non-negotiable pre-condition to grant access to our market of 450 million citizens".

A level-playing field is a trade policy term for a set of common rules and standards that prevent businesses in one country undercutting their rivals and gaining a competitive advantage over those operating in other countries.

The EU has been insistent there should be level-playing field for workers' rights, environmental protection, taxation and state aid.

The next round of talks is due to begin on 7 September in London.