Bloomberg News - Pound Drops to Lowest Since 2010 as Industrial Output Plunges

The pound fell to its lowest since June 2010 against the dollar as a report showed U.K. industrial production declined the most in almost three years in November.

Sterling dropped at least 0.5 percent against all of its 16 major peers and approached the weakest level since February against the euro. The move in the U.K. currency came before the Bank of England announces its latest policy decision on Jan. 14. Concerns about Britain’s future in the European Union and an uneven domestic economic recovery have weighed on the pound since the start of the year and prompted markets to further delay their calls on the timing of when the BOE will lift interest rates from their record low.

“The weak industrial production report is just enough to get you selling again,” said Neil Mellor, a currency strategist at Bank of New York Mellon Corp. in London. “With all the problems the U.K. is having -- strong pound, Brexit, the dollar is probably set to turn higher -- I could certainly see it in the low 1.40s from here, no problem at all.”

The pound fell 1 percent to $1.4394 as of 4:22 p.m. London time, after touching $1.4352, the lowest since June 2010. Sterling depreciated 0.9 percent to 75.31 pence per euro having touched 75.55 pence on Monday, the weakest since Feb. 4.

Industrial output dropped 0.7 percent from the previous month, the Office for National Statistics said in London on Tuesday. Economists had forecast no growth on the month. Manufacturing also delivered a lower-than-forecast performance in November, with output dropping 0.4 percent on the month.

“The numbers are weaker than expected,” said Stuart Bennett, London-based head of Group-of-10 currency strategy at Banco Santander SA. The pound sold off on “the back of it but now weak U.K. numbers are not new information.”

Rate Forecasts

JPMorgan Chase & Co. pushed back forecasts for a BOE rate increase to November from May on Tuesday, citing “weakness” in U.K. industrial production. ING Groep NV, Goldman Sachs Group Inc. and Rabobank International last week delayed forecasts into the fourth quarter of this year.

Deutsche Bank AG strategists including New York-based Sebastien Galy recommended investors should go short sterling versus the dollar and the Swedish krona in their latest report Tuesday. A short position is a bet a currency will decline.

BOE officials will keep their key interest rate at a record-low 0.5 percent when they announce their decision on Thursday, according to all 45 economists surveyed by Bloomberg. Traders will comb through the minutes of the meeting to see whether more hawkish policy makers have changed their minds on the potential for higher borrowing costs and also the Monetary Policy Committee’s thinking on the fall in oil prices and worries about China’s economy.

Forward contracts based on the sterling overnight index average, or Sonia, aren’t pricing in a quarter-point increase until after February 2017, data compiled by Bloomberg show.

U.K. government bonds rose, with the benchmark 10-year gilt yield falling two basis points, or 0.02 percentage point, to 1.76 percent. The 2 percent security due September 2025 climbed 0.155, or 1.55 pounds per 1,000-pound face amount, to 102.12.

by Anooja Debnath and Manisha Jha

BBC News - US economy adds 292,000 jobs in December

US jobs growth remained solid in December as the economy added 292,000 jobs, beating expectations.

The Bureau of Labor Statistics data also showed the jobless rate held at its seven-and-a-half year low of 5%.

Professional and business services, construction, health care, and food services all saw job increases.

In addition, the figures for October and November were revised up to show 50,000 more jobs created than previously reported.

However, not all sectors saw job gains in December - mining continued to decline, dropping by 8,000, and taking the total jobs lost in the sector in 2015 to 129,000.

In the fourth quarter of 2015, US economy created an average of 284,000 jobs a month, the best three-month pace in a year.

The robust figures suggest resilience in the US economy at a time of market turmoil in China, the world's second biggest economy, and global economic uncertainty.

Robust consumer spending has encouraged employers to hire staff, offsetting a drop in US exports in response to a stronger dollar.

"It is one more sign the domestic economy continues to chug along," said Kate Warne, an investment strategist at Edward Jones.

"It is not a game changer in terms of faster economic growth, but it offsets some of the other indicators that recently have suggested the economy might be slowing down."

The figures come after the first US interest rate rise in nearly 10 years in December.

The Federal Reserve raised overnight interest rates last month by a quarter of a percent to between 0.25% and 0.50%.

US stocks opened higher after the jobs figures were released. The Dow Jones Industrial Average then lost ground, closing down 167.65 points, or 1.02%, at 16,346.45.

Bloomberg News - Zuma Begins Fightback as South Africa's Rand Gets Hammered

President Jacob Zuma is blaming everything from market overreaction to political intrigue in a public relations fightback against criticism that his leadership is undermining South Africa’s economy and denting the popularity of the ruling African National Congress. 

In interviews this weekend, Zuma cited market “overreaction” when the rand weakened to a then record low and bond yields rose to a seven-year high last month after he fired Finance Minister Nhlanhla Nene and replaced him with little-known lawmaker David van Rooyen. The currency hasn’t recovered since he rescinded his decision and appointed Pravin Gordhan to the post. He also called criticism that his friendship with a wealthy Indian family which employs his son reeks of influence peddling “a political thing.”

“Zuma’s comments indicate a profound lack of understanding of how global capital markets work and how trust is built between governments and lenders,” said Nic Borain, an adviser to BNP Paribas Securities South Africa. “He’s saying the rand was going down anyway and it’s not his fault, but it is his fault.”

Zuma spoke at a time when the rand is hitting record lows almost daily, South Africa’s debt is threatened by a credit downgrade to junk and the ANC is preparing for what analysts expect to be hotly contested local elections this year, particularly in the capital, Pretoria, and Johannesburg. The vote will take place against a backdrop of mounting discontent among poor South Africans over living conditions and a 25.5 percent unemployment rate.

While more than 200,000 people have signed online petitions calling for the president to quit or be ousted, Zuma’s comments indicate he won’t go willingly before his current term ends in 2019. He’ll be able to remain in office as long as he retains the backing of the ANC, which won 62 percent of the vote in the last elections in 2014.

Public Distrust

In power since 2009, Zuma has repeatedly come under attack from opposition parties for squandering taxpayers’ money on a 215-million rand ($13 million) upgrade of his private home. Public distrust in the president stands at a record of 66 percent, up from 37 percent in 2011, and a majority of South Africans believes he routinely ignores parliament and the courts, an Afrobarometer poll of 2,400 people released in November showed.

Former Finance Minister Trevor Manuel, ex-Public Enterprises Minister Barbara Hogan and former central bank governor Tito Mboweni voiced criticism after Nene was axed.

“There was an exaggeration that was unfortunate,” Zuma told the South African Broadcasting Corp. in an interview. “In any case, I’ve never come across a period in which people say the markets are happy. It differs in degrees. No one can say this is the first time we had this kind of a problem.”

Rand Slides

Even after the appointment of Gordhan, who served as finance minister between 2009 and 2014, the rand’s downward slide has continued unabated. It reached a record low of 17.9169 on Monday, before rebounding to trade at 16.5748 at 1:12 p.m. in Johannesburg.

“The president seems quite clearly to have been stung by the criticisms surrounding his decision to fire Nene, otherwise he would not still be talking about it a month later,” Judith February, a political analyst at the Institute for Security Studies, said by telephone on Monday. “He has not given any rational basis for the firing and when Zuma is left to ad lib or speak in a non-structured environment he is inclined to muddy the waters even more.”

Zuma told ENCA television the criticism of his friendship with the Gupta family was political posturing, and there was nothing untoward about their relationship. He’s previously denied playing any role in securing permission for them to land a plane at the high-security Waterkloof air force base to take friends to a wedding or using his position to further their business interests.

Election Challenge

Zuma’s failure to acknowledge his missteps may backfire on him and the ANC in the local elections that are scheduled to be held between May and August, according to Susan Booysen, a politics professor at the University of the Witwatersrand’s School of Governance.

“The president’s comments this weekend did not even offer a halfhearted apology for the Nene debacle,” Booysen said by telephone on Monday. “It seems that the president’s advisers are either not briefing him properly or that there is a general trend in the ANC to leave him to hang out and dry. Whatever, the reason, it could be disastrous for the party at the local elections.”

by Paul Vecchiatto  and 

Michael Cohen

BBC News - Osborne warns of 'dangerous cocktail' of economic risks

The UK faces a "cocktail" of serious threats from a slowing global economy as 2016 begins, Chancellor George Osborne has warned.

Speaking in Cardiff, Mr Osborne said this year is likely to be one of the toughest since the financial crisis.

He told business leaders that far from "mission accomplished" on the economy, "2016 is the year of mission critical".

His message is in stark contrast to the positive tone of his Autumn Statement, when he said the UK was "growing fast".

Earlier the chancellor told BBC Radio 4's Today programme that the Autumn Statement had put in place a four-year plan to restore the UK's public finances, and make the economy more productive, with businesses more competitive so they could create jobs.

"It is precisely because we live in an uncertain world. It is precisely because we have not abolished boom and bust as a nation, that you need to take these steps, difficult steps, and I need to go explaining to the public, that the difficult times aren't over, we have got to go on making the difficult decisions, precisely so that Britain can continue to enjoy the low unemployment and the rising wages that we see at the moment," Mr Osborne said.

The chancellor's warning came on the same day that China suspended trading on its stock markets after only 15 minutes.

Circuit-breakers triggered the Chinese share suspension following a 7% fall in the country's main index.

Later on Thursday, the Chinese authorities said they were suspending the circuit-breaker system.

The price of a range of key commodities, such as oil, gas and iron ore, has fallen sharply in the past year, a move that indicates weakening demand in the global economy while oil prices hit fresh 11-year lows. earlier on Monday.

But shadow chancellor John McDonnell blamed the government's "failed economic policies" for the threats facing the economy.

"It's a cocktail of his own mixture - failing to invest, failing to rebalance the economy, relying upon consumer debt to boost the economy for an election victory and now we're facing our own lethal cocktail within our own economy," he told the BBC.

"He's getting his excuses in early for the problems that he's caused that will now unfortunately hit upon many families across the country, especially if interest rates are increased during the year."

Image copyrightGetty Images

Image captionOil prices have tumbled 70% since June 2014

The chancellor laid out a number of risks that the UK economy faces over the next 12 months in his Cardiff speech.

People must not be "complacent" that the economy is fixed, he said.

Significant challenges - including tension in the Middle East, slowing growth in China and low commodity prices - are all weighing on global confidence, he added.

'New threats'

Mr Osborne told the Today programme the UK's economic recovery was not "a debt-fuelled recovery", citing the support of the governor of the Bank of England in his assessment.

But the chancellor said he feared there was a complacency that appeared to be developing in the UK's national debate.

"You have had people coming on programmes like this saying, 'We've got to spend billions of pounds here or billions of pounds there; the country can afford it,'" Mr Osborne said.

Image copyrightGetty Images

Image captionChina's stock market was suspended after just 30 minutes - and for the second time this week - as shares plunged 7%.

"All the old habits, all the old habits, all the old bad ways that got Britain into that mess are re-emerging in some of our national debate and I need to remind people that it's a very challenging world out there, that Britain still has big economic problems that it has to fix," he said.

"I am determined to see through the plan that has got the British economy that is in the stronger position that it is in today," he added.

On the domestic front, the first interest rate rise since 2007 could come this year.

Treasury sources pointed out that is not a decision for the chancellor - interest rate rises are a matter for the Bank of England - but there are many homeowners with large mortgages who have never experienced even a small rate rise.

Privately, those close to Mr Osborne have expressed concerns that a rate rise could have an impact on consumer confidence.

But Mr Osborne denied he was putting any pressure on the Bank of England to raise interest rates, adding, "People like Mark Carney would not respond to that pressure."

He added that rising interest rates should be seen as a sign of a strong economy.

"We have to make sure we are ready for whatever the interest rate environment is," Mr Osborne said.

But, he added, if and when interest rates rose, it would be a sign of a stronger economy that was normalising after the financial crisis

Bloomberg News - Fed's Fischer Says Four Rate Hikes in 2016 ‘in the Ballpark’

Stanley Fischer.

 

Photographer: Victor J. Blue/Bloomberg

Federal Reserve Vice Chairman Stanley Fischer said policy makers’ forecasts predicting four interest-rate increases in 2016 were “in the ballpark,” though China’s slowing economy and other sources of uncertainty make it difficult to predict the path of policy.

“The reason we meet eight times a year is because things happen, and as they happen you want to adjust your policy,” Fischer said in an interview Wednesday on CNBC.

Fischer’s remarks come three weeks after the Fed raised interest rates for the first time in almost a decade. Policy makers said at the time they would continue to monitor real and expected progress on inflation, which remains below their 2 percent target, as they contemplate when to raise again.

After the December meeting, the Fed also released its quarterly Summary of Economic Projections, showing Federal Open Market Committee members’ forecasts for economic conditions and the path of rates. The committee’s median estimate put the benchmark federal funds rate at the end of 2016 at 1.4 percent. That implies four additional quarter-point hikes this year.

Regarding China, Fischer said "there are levels of uncertainty and they’ve risen a bit now," while downplaying the direct effect on the U.S. economy.

Global Fallout

“If all China’s neighbors and other large parts of the world are negatively affected to a considerable extent by China, then that would be an impact,” he said. “The rest of the world matters to us. If it was only China it would still matter, but a good deal less.”

The Standard & Poor’s 500 Index dropped 1.5 percent on Monday, the worst start to a year for U.S. stocks since 1932, after poor manufacturing news emerged from China, triggering a sell off that halted trading in Shanghai.

Turmoil caused by worries over China last year helped convince the Fed to delay a rate increase from September to December. Fischer said that made sense because the exact timing of moves are less important than the trajectory of rates over the longer term.

‘We Waited’

“From the viewpoint of what really matters, it’s what people think is going to happen over the next couple of years, and I think September was a good example of that,” he said. “We waited, looked around, saw that it hadn’t had a huge effect and made the move at the next suitable occasion.”

Fischer said he continued to expect inflation to move back toward the Fed’s 2 percent target as the price of oil and the value of the U.S. dollar stabilize. Still, he said, rates will probably remain low.

“As long as inflation is lower than the 2 percent and unemployment is somewhere around where it should be, there’ll be a force requiring us to maintain an accommodative policy,” he said.

Investors currently expect only two quarter-point increases this year, according to pricing in federal funds futures, but Fischer said that the view of the market was “too low.”

“We make our own analysis and our analysis says that the market is under-estimating where we’re going to be,” he said.

Minutes of the Dec. 15-16 FOMC meeting are scheduled to be released on Wednesday at 2 p.m. in Washington.

Christopher Condon chrisjcondon

BBC News - Chinese shares extend losses in volatile trading session

Image copyrightAFP

Mainland Chinese shares extended losses in a volatile session, following Monday's suspension of trading which led to a global equities sell-off.

The Shanghai Composite fell 0.3% to close at 3,287.71 points, although it had opened more than 3% lower.

Hong Kong's Hang Seng index also fluctuated through the day, and ended 0.7% lower at 21,188.72.

Trading in Shanghai was suspended early on Monday under a new rule designed to limit dramatic falls in markets.

But regulators said on Tuesday they may restrict stock sales to stem falls.

The China Securities Regulatory Commission said it would consider restricting the proportion of shares that major shareholders could sell during a given period of time.

The central bank also injected an unexpected 130bn yuan (£13.55bn; $19.94bn) into the market to keep borrowing costs down - in a move to reassure retail investors.

The measures, however, did little to prevent Chinese shares from falling in afternoon trade.

More volatility ahead?

Analysts said investors were waiting to see if Beijing could stem the latest selling in Chinese stocks and whether more measures would be introduced.

But Bernard Aw, market strategist at trading firm IG, said Beijing was arguably more concerned about economic growth than the stock market.

"Furthermore, it could look really bad if they have to throw in more measures when they are in the process of withdrawing the [last] rescue measures," he said in a note.

The new "circuit breaker" rule that suspended trading nationwide for the first time on Monday was created after sharp falls last summer and was meant to curb market volatility in China.

Monday's 7% fall in China spooked global markets.

Overnight, US benchmark indexes lost up to 2% as concerns grew that the dive in the Chinese stocks was the start of another volatile period after last summer's dramatic market rout.

Oil continues to weigh

Escalating tensions in the Middle East, which affected oil prices, also dented investors' confidence.

Oil prices were flat after rising as much as 4% on Monday following the dispute between Saudi Arabia and Iran.

Japan's Nikkei 225 index ended 0.4% lower at 18,374.00, while Australia's S&P/ASX 200 closed down 1.6% at 5,184.43.

Only South Korean shares bucked the downward trend after a senior finance ministry official said the government would take action to stabilise the market if needed, following Monday's steep plunge.

The Kospi finished up 0.6% at 1,930.53.

Reuters News - Stocks open 2016 on back foot on China data, oil rises

European shares fell on Monday on the first trading day of 2016 after weak Chinese data rekindled global growth worries, while oil prices jumped and bond yields dropped on rising tensions in the Middle East.
Chinese manufacturing surveys showed that any hopes for a recovery in the sector were premature, with factory activity contracting for a 10th straight month in December and at a faster pace than in the previous month.
Adding to the worries, China's central bank fixed the yuan at a 4-1/2 year low. Mainland Chinese shares .CSI300 fell 7 percent, prompting the stock exchange to halt trading.
European stocks followed Asia's lead. The pan-European FTSEurofirst 300 index .FTEU3 fell 2.3 percent, while the euro zone's blue-chip Euro STOXX 50 index .STOXX50E declined by 2.6 percent. Germany's DAX .GDAXI dropped 3.4 percent.
"(Equity) investors are not going to like the start of this year, particularly when you have news that trading was halted in China due to a market sell-off," said Naeem Aslam, chief market analyst at AvaTrade.
Global oil benchmark Brent LCOc1, which fell 35 percent last year due to fears of over-supply in a global slowdown, climbed more than a dollar to a high of $38.50 per barrel before easing back to $37.47.
The rise came as relations between leading crude producers Saudi Arabia and Iran deteriorated, raising concerns about potential supply disruptions.

Saudi Arabia, the world's biggest oil exporter, cut diplomatic ties with Iran on Sunday in response to the storming of its embassy in Tehran. Bilateral tensions escalated following Riyadh's execution of a prominent Shi'ite cleric on Saturday.
The Saudi riyal fell sharply against the dollar in the forward foreign exchange market. One-year dollar/Saudi riyal forwards SAR1Y= jumped to 680 points, near a 16-year high.

SAFE HAVENS

Those tensions prompted investors to seek the safety of bonds, with yields on triple-A rated German 10-year Bunds DE10YT=TWEB falling 6 basis points to 0.575 percent.
The cautious mood towards riskier assets helped the Japanese yen, with the dollar falling below 119 yen for the first time since mid-October JPY=.
Gold XAU= jumped nearly 1 percent to $1,069.20 per ounce.
"Concern over the health of the Chinese economy accompanied by spiking tensions in the Middle East have combined to ensure ... firm demand for safe-haven assets," Rabobank strategists said in a note.

The offshore yuan fell as low as 6.6185 to the dollar CNH=D3, its weakest since early 2011. Onshore, the yuan CNY= hit its lowest since April 2011, at 6.5166.
The euro firmed 0.5 percent to $1.0915 EUR=.
Investors are wondering how much further the U.S. Federal Reserve will raise rates this year after its first rate hike in almost a decade last month.
An immediate focus will be on Monday's ISM survey on U.S. manufacturing, which is expected to show the sector is still in contraction after hitting a 6-1/2-year low in November. USPMI=ECI
"It was quite unusual for the Fed to raise rates when the ISM is below 50, (which indicates contraction). And we are likely to see another month of contraction. We have to see how long this will continue," said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.

 LONDON | By Marius Zaharia
(Additional reporting by Dhara Ranasinghe in London and Hideyuki Sano in Tokyo; editing by John Stonestreet)