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Thursday, March 17, 2016

Reuters News - Dollar swoons as Fed scales down rate hike forecasts

The dollar tumbled on Thursday, lifting world shares to their highest level of the year, after the Federal Reserve scaled down its own expectations of the number of U.S. rate hikes likely over the next nine months.

The Fed, via its 'dot plot' system, which charts what rate moves policymakers expect, effectively chopped those forecasts in half, from four hikes to two for the year.

It was a signal that triggered a slump in the dollar and a surge in risk appetite that rolled from Wall Street to Asia and then into Europe, where London .FTSE, Frankfurt .GDAXI and Paris .FCHI opened 0.5 to 0.8 percent higher and bond yields fell. [GVD/EUR]

Commodity markets cheered too. Brent oil jumped over $41 a barrel as a number of large producers also nailed down a date for an output freeze meeting. Industrial metals such s copper CMCU3 saw their biggest rise in two weeks. [MET/L]

But it was the currency markets that really grabbed the attention as the dollar sank to one-month and three-week lows against the euro EUR= and yen JPY=, and emerging market and oil and commodity-linked currencies surged. [FRX/]

"Risk is thoroughly on," said Societe Generale global head of currency strategy Kit Juckes. "All the chit chat was that they (the Fed) were going to be hawkish, and they weren't."

"The dollar is obviously the loser, but it's good for shares, it's good for oil, and good for debt too, I would say."

Europe's .FTEU3 solid start saw MSCI's 46-country All World share index .MIWD00000PUS climb over 1 percent on the day to reach its highest since Jan 4. the opening trading day for most major markets of the year.

For emerging markets, the news was even better, as a more than 2 percent surge took the volatile asset class's stocks MSCIEF to their highest since mid-December as currencies and debt rallied too.

One outlier was South Africa, though, ahead of a meeting of its central bank after another week in which the rand has been hammered by political worries.

SURGING EMERGING

The Malaysian ringgit MYR=, Indonesian rupiah IDR= and South Korean won KRW= all rose more than 1 percent against the dollar as a clutch of Asian currencies hit multi-month peaks. [EMRG/FRX]

"In the past, when the dollar weakened after the Fed was dovish, the dollar weakness lasted for maybe about three to four months," said Tan Teck Leng, FX strategist for UBS chief investment office Wealth Management in Singapore.

"But is this the end of the strong dollar? We don't think so," he said, adding that the Fed could start sounding hawkish again around June and July to pave the way for a rate rise, possibly in September.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS climbed to a two-month high as Australian stocks added 1 percent, South Korea's Kospi .KS11 rose 0.9 percent and Shanghai .SSEC was up 1 percent.

The jump in the yen meant Japan's Nikkei .N225 lost out though, as it closed down 0.2 percent.

World growth concerns, particularly regarding China, have rattled markets through much of this year, and this was seen to have influenced the Fed's shift in position as it cited the "global risks" facing the U.S. economy.

The dollar index slipped to a one-month low of 95.038 .DXY as European trading settled, and the euro was eyeing $1.13 EUR= for the first time since mid-January as the dollar also slid below 112 yen JPY=.

Commodity-linked currencies rose strongly as products such as oil and iron ore soared after the Fed's decision.

The Australian dollar, which had already jumped 1.2 percent overnight, caught a fresh lift from an upbeat local jobs report and rose to an eight-month high of $0.7620 AUD=D4.

The Canadian dollar was firm at just under C$1.30 to the U.S. dollar CAD=D4 after rallying nearly 2 percent to a four-month peak of C$1.3094 overnight.

U.S. crude oil rose to a three-month peak of $39.54 a barrel CLc1 after surging nearly 6 percent overnight. Brent LCOc1 was up 95 cents at $41.27 a barrel. [O/R]

Three-month copper on the London Metal Exchange CMCU3 traded up 1.5 percent at $5,065 a tonne. A weaker greenback tends to favor commodities traded in dollars by making them cheaper for non-U.S. buyers. [MET/L]

(Reporting by Marc Jones; Editing by Kevin Liffey)

Wednesday, March 16, 2016

BBC News - Budget 2016: George Osborne prepares Budget 'for long term'

George Osborne will set out £4bn in extra spending cuts and announce investment in the UK's infrastructure when he presents his Budget to MPs.

The Budget will "choose the long term" the chancellor will say, warning that the "storm clouds are gathering again".

His eighth Budget will include a £1.5bn education package to turn all state schools in England into academies and allow some to open later in the day.

Shadow chancellor John McDonnell called for an end to "cruel cuts".

Mr Osborne will deliver his Budget at 12:30 GMT, after Prime Minister's Questions, setting out the latest economic forecasts and the state of the public finances.

In his biggest Parliamentary test to date, Labour leader Jeremy Corbyn will deliver the Opposition's response.

The chancellor is expected to say that the UK is economy "strong" but warn that "storm clouds are gathering".

"Our response to this new challenge is clear. A Budget where we act now so we don't pay later," he will say, with a pledge to "put the next generation first".

BBC political editor Laura Kuenssberg said people might wonder where the "sunshine chancellor" has gone.

Mr Osborne had "time and again" said the government had "fixed the roof while the sun was shining but "today the metaphors will feel very different", she added.

Mr Osborne's statement comes with three months to go before the UK votes on its EU membership. The government is campaigning to remain in the EU, and the chancellor will be keen to avoid antagonising either side in the debate with his announcements.

Budget 2016 on the BBC

A special edition of the Daily Politics presented by Huw Edwards starts at 11:30 GMT on BBC2 and the BBC News Channel, also including Prime Minister's Questions at noon. BBC Radio 5 Live Daily will also cover all the action. For full coverage online please visit the BBC's Budget 2016 in-depth section.

As well as eliminating the deficit by 2019-20, the chancellor has set himself a target of having debt falling as a share of GDP every year.

Sluggish growth since his November Autumn Statement - when cuts to tax credits and police budgets were watered down - could mean more spending cuts and tax rises are needed to achieve his surplus target.

He has already warned that global uncertainty and the state of the world economy means the UK has to "act now rather than pay later" in making further spending reductions.

The £4bn extra cuts would be "equivalent to 50p in every £100" of public spending by 2020, which was "not a huge amount in the scheme of things", he has said.

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Media captionRoss Hawkins looks at what to expect from the 2016 budget

Suggested tax rise options include a claim by the insurance industry that another increase in Insurance Premium Tax is planned, while capitalising on low oil prices to raise fuel duty would be opposed by many Conservative MPs.

On the investment side, Mr Osborne is also set to commit £300m for transport projects, with the government funding the start of work on the Crossrail 2 rail line and new High Speed 3 link across the north of England.

Almost half of the transport money committed was announced in the Autumn Statement.

The government has also announced a 'Help to Save' scheme under which would give low-paid workers a top-up if they put savings aside.

No longer the 'lucky chancellor'?

Analysis, by BBC political editor Laura Kuenssburg

If George Osborne was the "lucky chancellor" in November when the Treasury found an extra £27bn down the back of the Commons green benches, what will he be today?

How does he respond practically and politically to the fact that the numbers he based his plans on at the Spending Review have turned out to be wrong?

George Osborne is going to have to fess up - the pages and pages of numbers the independent Office for Budget Responsibility provided as the basis of his sums won't add up any more.

We know too - as he told me a few weeks ago - that means extra government cuts are likely, probably an additional £4bn billion a year by 2020.

Jeremy Corbyn will be responding to the chancellor's speech, but the opposition that really troubles Mr Osborne right now is those on his own benches - and if he's not the "lucky chancellor" any more, what they'll be calling him by the end of today.

Tuesday, March 15, 2016

BBC News - EU Referendum: CBI survey suggests most members favour staying in

CBI finds businesses want Britain to remain a member of the EU

Britain's biggest business lobbying group says 80% of members questioned in a survey want to stay in the EU.

The CBI said the majority of nearly 800 firms taking part felt Britain remaining in Europe was "better for business, jobs and prosperity".

But the group said it would not align itself with either side of the debate.

Vote Leave chief executive Matthew Elliott said: "It's welcome news that the CBI has seen sense and won't be seeking to campaign in the referendum."

Carolyn Fairbairn, director-general of the CBI, said: "The message from our members is resounding - most want the UK to stay in the EU because it is better for their business, jobs and prosperity.

"Walking away makes little economic sense and risks throwing away the many benefits we gain from being part of the EU."

The survey of 773 companies questioned by polling company ComRes found that large organisations within the CBI were more likely than small and medium-sized companies to want to remain in the EU.

Overall, 5% of businesses that took part in the survey thought that it would be in their company's best interests for Britain to leave Europe while 15% were unsure.

'Respect and reflect'

Ms Fairbairn said the CBI would now set out the economic case for the UK remaining in Europe ahead of the referendum on 23 June but said that it would not align itself with any side in the campaign, adding: "It is not our place to tell people how to vote."

She added: "A minority of members want to leave the EU. We will continue to respect and reflect their views and campaign for EU reform to get a better deal for all businesses.

"However, most CBI members are unconvinced that alternatives to full membership would offer the same opportunities. We have yet to see those who seek to leave the EU present a compelling vision of what this would mean for jobs and growth."

John Longworth, director general of the British Chambers of Commerce (BCC), recently resigned after being suspended for saying the UK's long-term prospects could be "brighter" outside the EU.

'Voice of Brussels'

The BCC said Mr Longworth had breached the group's non-partisan position on the referendum. It had decided it would not campaign for either side in the forthcoming UK referendum on EU membership.

Vote Leave said the CBI had "consistently misrepresented the views of business on the issue, acting as little more than the Voice of Brussels".

It said the survey was too skewed in favour of big companies to be seen as reflective of British business attitudes towards the EU, pointing out that just 0.1% of UK businesses had more than 250 employees.

Friday, March 11, 2016

BBC News - New Zealand cuts interest rates for the fifth time since June

Reserve Bank Governor Graeme Wheeler speaks in New Zealand — Image captionIn December central bank governor Graeme Wheeler said he was positive on the outlook for inflation and economic growth

In a surprise move, the Reserve Bank of New Zealand (RBNZ) has cut its lending rates for the fifth time since June last year to a record low of 2.25%.

The bank said the 25 basis point cut was due to global growth worries and weaker demand from China - an important trade partner.

New Zealand is the world's largest dairy exporter but the sector has been facing some challenges.

The central bank signalled it could cut rates further to help boost growth.

The New Zealand dollar fell on the news by more than 1%.

The RBNZ last cut rates in December from 2.75% to 2.5%, saying the country's economy had softened in 2015.

At the time, central bank governor Graeme Wheeler said he was positive about the outlook for inflation and economic growth for 2016.

Five dollar note — Image captionNew Zealand's dollar fell on the news of the surprise cut on Thursday by more than 1%

However, as he announced the bank's latest cut, Mr Wheeler said the outlook for global growth had worsened since the December cut "due to weaker growth in China and other emerging markets, and slower growth in Europe."

Mr Wheeler's announcement comes ahead of a European Central Bank (ECB) meeting later on Thursday. The ECB is widely expected to announce further stimulus measures to help bolster the eurozone's economic recovery.

Important dairy

Agriculture is an economic mainstay in New Zealand, particularly its dairy sector.

The country exports some 95% of its milk production, with 87% of that collected by Fonterra, the world's biggest dairy exporter.

Cows being herded in New Zealand — Image captionNew Zealand is the world's largest dairy exporter and its products are popular in Asia - in particular China

But New Zealand's dairy exports have been hurt by falling prices internationally together with a slowdown of its major trading partner China - a big buyer of its dairy products.

"Domestically, the dairy sector faces difficult challenges," Mr Wheeler said.

Inflation has also been a concern for the country, with its annual rate at 0.1%. The bank's target is between 1% and 3%. Lowering benchmark lending rates is seen as one way to increase inflation.

Mr Wheeler's outlook was not altogether negative, however.

He said the country's growth was expected to be supported "by strong inward migration, tourism, a pipeline of construction activity, and accommodative monetary policy".

Thursday, March 10, 2016

BBC News - ECB expected to launch new economic stimulus

The European Central Bank is expected to announce further measures to stimulate the eurozone economy when its governing council meets on Thursday.

Inflation has continued to fall, putting more pressure on ECB president Mario Draghi to take action.

The annual rate of inflation now stands at minus 0.2% - even further below the bank's target of just under 2%.

A figure that low underlines the weakness in the economies of the 19 countries that use the euro.

The ECB is widely expected to cut the deposit rate for funds from commercial banks even further into negative territory. Such a move is intended to encourage banks to lend more money and boost economic activity in theory.

The deposit rate for funds from commercial banks stands at minus 0.3%, which means they must pay to park money with the ECB, but may be cut to minus 0.4% or even minus 0.5%.

The negative rate is regarded as a drastic and experimental move that reveals just how far the ECB is from meeting its inflation target.

The ECB could also expand its bond-buying programme, also known as quantitative easing, which pumps newly printed money into the economy.

It may decide to buy more than the current €60bn of bonds a month. The bank uses new cash to buy government and some private-sector bonds from banks. That pushes more euros into the banking system in the hope they will be loaned to businesses and consumers. In theory, that should eventually raise inflation and economic activity.

The programme could also be extended past its existing March 2017 end date.

Ben May, an analyst at Oxford Economics, said the ECB could raise the purchases to as much as €80bn a month.

Mr Draghi may also say that the ECB will not make banks hold more cash as reserves against possible losses, easing financial pressure on them.

His comments will be scrutinised for signs of dissent on the 25-member council.

Jens Weidmann, the head of Germany's central bank and a governing council member, has repeatedly warned against more ECB stimulus.

More broadly, the Bank for International Settlements - an international organisation of central banks - said in a report on Sunday that central bank measures could be "approaching their limits".

'Negative rate battle'

Traders will also monitor the effect of Mr Draghi's comments on the euro. Exports benefit if the euro falls against other currencies.

Marco Valli, chief eurozone economist at UniCredit Research, fears that the ECB may become "trapped in a negative rate battle" with other central banks such as those in Japan, Sweden and Switzerland that have also cut their rates below zero and encouraged their currencies to weaken.

If one currency falls, another must rise, cancelling out the effect of any stimulus measures.

However, Spreadex financial analyst Connor Campbell warned that no matter what Draighi revealed investors may well be disappointed: "Given the arguable lack of effect the past and present programmes have had, it is difficult to tell what the markets would treat as a satisfactory announcement from the central bank."

Analysis: Kamal Ahmed, economics editor

Negative interest rates sound like they come, fully formed, from the Through the Looking Glass world of economics.

Central banks in countries or geographies with a growth problem - Japan and the eurozone, for example - have used them to try and encourage lending and boost inflation.

Surely it is better for banks to put funds to work in the real world than deposit them at a central bank - and pay them for the privilege.

Sadly, that does not appear to be the case.

Highly regulated banks deposit excess funds with central banks because it is secure.

Lending to a wider range of businesses or buying into different asset classes is riskier and could have an expensive impact on the amount of capital the bank has to hold.

Negative interest rates have also tended to undermine banks' ability to make profits.

In a hyper-low interest rate world, banks feel unable to pass on the increased costs of negative interest rates to customers and are taking the hit themselves.

Bank share prices have fallen markedly in the last year as negative interest rates add to the financial services gloom.

And, if central banks are resorting to such unorthodox monetary policies, doesn't it just show that the global economy is in much more of a mess than anyone is admitting?