BBC News - Pound falls on May's Brexit comments

The value of the pound has fallen to a two-month low against major currencies after Prime Minister Theresa May signalled the UK would pursue a so-called "hard Brexit" from the EU.

Sterling fell about 1% across the board. The only currency against which it gained ground was the Turkish lira.

The Prime Minister told Sky News on Sunday that she wanted the best possible deal for leaving the EU.

However, she dismissed the idea that the UK could "keep bits of membership".

She added: "We're leaving. We're coming out. We're not going to be a member of the EU any longer."

Commentators interpreted this as meaning that Mrs May would not seek to keep the UK in the EU's single market, with radical consequences for the country's economy.

'Populist politics'

By late morning, the pound was down 1.06% against the dollar at $1.2155, while against the euro, it was 0.89% lower at €1.1561.

"Sterling is on the back foot on Monday after Theresa May's comments were taken as a sign the UK government would prioritise immigration controls over single market access," said Neil Wilson, senior market analyst at ETX Capital.

"Domestic populist politics trumps the trade card for now, it seems, and that is weighing on the pound."

Mr Wilson predicted "more volatility" in the sterling exchange rate, adding that it could easily "bounce back" as the tone of political discourse shifted.

HSBC currency strategist Dominic Bunning agreed: "[Mrs] May saying that it's not about keeping 'bits' of the EU suggests it's not going to be about keeping access to the single market.

"She said we will have full control of our borders, and given what the other side of the debate - the EU - has said, that's not compatible with full access to the single market, free movement of capital, free movement of goods and services.

"That's the direct trade-off that the [foreign exchange] market is looking at."

Inflation rising

Paresh Davdra, chief executive of RationalFX, said: "The looming fears that the UK might exit the single market continue to weigh down on the pound, and we expect the volatility to continue until further and actual on-ground clarity emerge.

However, he added: "All is not lost for the UK, as the fall in the pound's value has attracted international market activity and simultaneously boosted the country's export figures."

The pound fell sharply in the immediate aftermath of the UK's June 2016 vote to leave the EU.

The weaker pound makes UK goods cheaper for buyers overseas, but increases the cost of imported goods.

Analysts expect UK inflation to pick up this year as the impact of higher import costs feeds through to the economy. Last week, a string of economic surveys indicated that companies were facing rising price pressures as import costs increased.

November's Consumer Prices Index (CPI) inflation rate was 1.2%, up from 0.9% in October and the highest since October 2014, when it stood at 1.3%.

Reuters News - Germany says can't figure out Trump's foreign policy goals

U.S. President-elect Donald Trump gestures as he speaks during a USA Thank You Tour event in Mobile, Alabama, U.S., December 17, 2016. REUTERS/Lucas Jackson

German officials who have held talks with members of U.S. President-elect Donald Trump's transition team have not been able to figure out what kind of foreign and security policy his administration wants to pursue, a spokesman said on Friday.

"It ultimately remains the case that there still is no clear, coherent and comprehensive picture of what kind of foreign and security policy the new Trump administration wants to pursue in the world," Foreign Ministry spokesman Martin Schaefer told a regular government news conference.

Trump has repeatedly praised Russian President Vladimir Putin and nominated people seen as friendly toward Moscow to senior administration posts.

Should Trump seek to improve relations with Kremlin, he could unsettle Germany, whose Chancellor Angela Merkel has supported the extension of European Union sanctions against Russia over its role in the conflict in Ukraine.

(Reporting by Joseph Nasr; Editing by Paul Carrel)

BBC News - UK service sector sees strong expansion in December

The UK service sector grew at its fastest pace for 17 months in December, a closely watched survey has indicated.

The Markit/CIPS services purchasing managers' index (PMI) rose to 56.2 last month, from 55.2 in November - the highest level since July 2015.

But inflationary pressure in the sector continued, with prices charged rising at the strongest rate since April 2011.

Services, which include areas such as retailing and banking, make up more than three-quarters of the UK economy.

Markit's Chris Williamson said it defied fears of a Brexit slowdown.

"At face value, this improvement suggests that the next move by the Bank of England is more likely to be a rate hike than a cut," he added.

However, Mr Williamson, Markit's chief economist, said policymakers were "clearly concerned about the extent to which Brexit-related uncertainty could slow growth this year".

As a result, he said, the Bank's Monetary Policy Committee would have to consider "the current resilience of the economy" alongside "elevated levels of uncertainty", meaning that interest rates could go either way.

Economy 'resilient'

Earlier in the week, surveys in the construction and manufacturing sectors indicated a similar pattern of growth. Mr Williamson said that collectively, the surveys pointed to GDP growth of 0.5% in the fourth quarter of the year.

The "all-sector" PMI rose to 56.4 in December from 55.1 the previous month - itself the highest reading since July 2015. A figure above 50 indicates expansion.

Paul Sirani, chief market analyst at Xtrade, said the latest survey showed the service sector was going "from strength to strength".

"Strong services data provides a good indication that the UK economy remains resilient amid ongoing Brexit uncertainty. However, greater tests lie ahead," he added.

"Further changes in the wider political landscape in early 2017 are likely to ask more questions of the robust UK economy, with its response anyone's guess."

Price pressures

At the same time, a survey by the British Chambers of Commerce indicated that there had been "continued expansion" for both manufacturing and services in the final three months of the year, but "at a lower level for the services sector than before the EU referendum".

The BCC said: "Firms in both sectors, particularly in manufacturing, are facing pressure to raise prices, principally as a result of the cost of raw materials and other overheads."

Dr Adam Marshall, the BCC's director general, added: "Overall, our findings suggest growth will continue in 2017, albeit at a more modest pace.

"The government must act strongly this year to support investment and improve the business environment - both of which are crucial to boosting business confidence, and therefore further growth."

Reuters News - Wall St. opens 2017 with big gains as banks surge

By Yashaswini Swamynathan

A trader at the New York Stock Exchange (NYSE) in Manhattan, New York City, U.S., December 30, 2016. REUTERS/Stephen Yang

Wall Street made big gains on Tuesday, its first day of trading in 2017, with all eyes on the Dow Jones Industrial Average as it zeroes in on the historic 20,000 mark.

After coming within a hair's breadth of the milestone in December as part of a post-election rally, the Dow was trading just 0.46 percent shy of the psychological milestone.

The Dow rose 13.4 percent in 2016 - its best performance in three years - registering strong gains in the past two months as investors bet that Presidential-elect Donald Trump would introduce market friendly policies such as tax cuts and simpler regulation.

Banks were the main drivers of the gains on Wall Street on Tuesday, with the S&P 500 financial sector .SPSY rising 1.33 percent. Barclays raised price targets on several Wall Street banks including Bank of America (BAC.N), Wells Fargo (WFC.N) and JPMorgan (JPM.N).

Goldman Sachs (GS.N) rose 1.5 percent to $243.50 and was the top stock on the Dow.

Feeding Wall Street's gains were oil prices, which hit an 18-month high as a deal to cut output took effect on Sunday, and upbeat China factory data. [O/R]

The dollar index .DXY was on a tear, notching its best day in nearly three weeks at 103.37, while higher inflation data sent European stocks to a one-year high.

At 9:40 a.m. ET, the Dow .DJI was up 143.1 points, or 0.72 percent, at 19,905.7, the S&P 500 .SPXwas up 16.11 points, or 0.72 percent, at 2,254.94 and the Nasdaq Composite index .IXIC was up 38.05 points, or 0.71 percent, at 5,421.16.

Ten of the 11 major S&P 500 indexes were higher, with the defensive real estate .SPLRCR and consumer staples .SPLRCS sectors bringing up the rear.

Utilities .SPLRCU, another defensive sector, was the only one in the red.

Marathon Petroleum (MPC.N) rose 6.8 percent to $53.74 after the company said it would explore a spinoff of its retail business, caving to pressure from activist investor Elliott Management.

Xerox (XRX.N) was the biggest percentage gainer on the S&P, rising nearly 16 percent, after the company said it completed the separation of its BPO unit Conduent.

Advancing issues outnumbered decliners on the NYSE by 2,121 to 597. On the Nasdaq, 1,900 issues rose and 545 fell.

The S&P 500 index showed 13 new 52-week highs and one new lows, while the Nasdaq recorded 73 new highs and six new lows.

(Reporting by Yashaswini Swamynathan in Bengaluru; Editing by Saumyadeb Chakrabarty)

Bloomberg News - Congo Leaders Agree on December Elections to End Kabila Rule

Democratic Republic of Congo’s ruling party and opposition leaders have signed a deal designed to end President Joseph Kabila’s rule and halt the violence that has erupted over his refusal to step down.

Under the agreement reached late Saturday, delayed presidential, legislative and provincial elections will be held in December, after which Kabila will leave. Kabila, in power since 2001, has not yet signed the accord, which was mediated by the country’s powerful Catholic Church.

“Work must continue, political stability must be safeguarded by implementing every point of this new political roadmap,” the head of the United Nations mission in the Congo, Maman Sidikou, said in a statement e-mailed Sunday, shortly after the agreement was reached.

Elections in Africa’s biggest copper producer were to have been held in November but were postponed by the electoral commission, which cited financial and logistical constraints. Kabila’s second and final term was to have ended on Dec. 19.

An earlier political agreement that would have allowed Kabila to remain in power until at least April 2018 was rejected by most of Congo’s opposition parties, which said the president was purposely delaying the votes. At least 40 people died last week in protests against the president.

The new agreement has broader support, but meeting the new election timeline will be difficult. The national election commission had previously said it required at least 17 months to complete a voter registration process and hold the polls.

BBC News - House price growth 'to slow in 2017'

UK house prices will continue to rise in 2017 but at a much slower rate, according to research from the Halifax.

Britain's biggest mortgage lender said annual house price growth would be running at between 1% and 4% by the end of the year.

That compared with an average of 10% in March 2016.

Halifax attributed the forecast to a "higher than normal degree of uncertainty" about the economy in 2017, linked to the recent fall in sterling.

It said a weaker economy, combined with falling affordability, would lead to fewer house sales.

The buy-to-let sector is also expected to cool further as new tax rules restrict landlords' profits.

Halifax said prices in London would slow more sharply than elsewhere, as affordability in the capital was already stretched.

However, the current low cost of mortgages and the ongoing shortage of properties for sale would continue to support prices across the country, it said.

Martin Ellis, Halifax's housing economist, said: "The housing market is critically dependent on how the wider economy evolves. We consider it most likely that the UK economy will soften over the course of 2017.

Further easing

"This is most likely to result from the weakening of sterling pushing up import costs and dragging on purchasing power, both for consumers and as a determinant of business investment spending."

With a higher risk of unemployment, rising inflation and "affordability constraints", housing demand was likely to be curbed, Mr Ellis said.

"These factors ... particularly in London and the South East, are likely to result in a further easing in annual house price growth during the coming year, continuing the trend seen since the spring of 2016."

The forecast chimes with several other predictions that point to slower house price growth in 2017.

Nationwide Building Society predicts price rises of about 2% next year, while the Royal Institution of Chartered Surveyors has said it expects property values to rise by about 3%

Reuters News - Trump tax reforms could depend on little-known 'scoring' panel

U.S. President-elect Donald Trump talks with the media at Mar-a-Lago estate where Trump attends meetings, in Palm Beach, Florida, U.S., December 21, 2016. REUTERS/Carlos Barria

President-elect Donald Trump's goal of overhauling the U.S. tax code in 2017 will depend partly on the work of an obscure congressional committee tasked with estimating how much future economic growth will result from tax cuts.

Known as the Joint Committee on Taxation, or JCT, the nonpartisan panel assigns "dynamic scores" to major tax bills in Congress, based on economic models, to forecast a bill's ultimate impact on the federal budget. The higher a tax bill's dynamic score, the more likely it is seen as spurring growth, raising tax revenues and keeping the federal deficit in check.

As Trump and Republicans in Congress plan the biggest tax reform package in a generation, the JCT has come under pressure from corporate lobbyists and other tax cut advocates who worry that too low a dynamic score could show the legislation to add billions, if not trillions of dollars to the federal deficit.

"The problem is that the Joint Committee staff has adopted a whole series of assumptions that truly minimize the effects and underestimate the impact that a properly done tax reform could have," said David Burton, an economic policy fellow at the conservative Heritage Foundation think tank.

A low dynamic score could force Republicans to scale back tax cuts or make the reforms temporary, severely limiting the scope of what was one of Trump's top campaign pledges.

Other analysts warn that pressure for a robust dynamic score raises the danger of a politically expedient number that could help reform pass Congress but lead to higher deficits down the road.

Until last year, JCT used a variety of economic models in its arcane calculations, reflecting the uncertainties in such work. But House of Representatives Republicans changed the rules in 2015 to require that a bill's score reflect only a single estimate of the estimated impact on the wider economy and resulting impact on tax revenues.

Next year's anticipated tax reform package would be the biggest piece of legislation that JCT has scored using this new, narrower approach, presenting the committee with a daunting challenge.

JCT Chief of Staff Thomas Barthold acknowledged the challenge of dynamic scoring in an interview with Reuters.

"The U.S. economy is so darn complex, you really can't have one model that picks up all of the complexity and nuance. So the essence of modeling is to try to slim things down, try to emphasize certain points," he said.

Tax reform is still months away. But the initial legislation expected in 2017 is likely to fall somewhere between two similar but separate plans, one backed by Trump and the other by House Republicans including Speaker Paul Ryan.

The proposals lean heavily for fiscal legitimacy on dynamic scoring. Even the most robust independent scores show both plans adding to the deficit.

But dynamic scoring, like any economic modeling technique, is far from precise and, when it comes to fiscal policy, any theoretical flaws could lead to very real consequences for taxpayers and the U.S. economy.

The JCT has included macroeconomic analyses in its tax bill scores since 2003, providing a range of estimates on economic effects built on a variety of assumptions.

When Dave Camp, as chairman of the House Ways and Means Committee, produced a tax reform bill in 2014, JCT used two models and forecast revenue gains ranging from $50 billion to $700 billion. The committee also provided economic growth forecasts from as low as 0.2 percent to as high as 1.8 percent.

The tax package likely to emerge next year will probably be even more complex than Camp's, prompting some to worry that budgetary and economic forecasts will range even more widely.

Some critics, including lobbyists for major corporations that stand to gain from big tax cuts, want JCT's numbers to look more like the nonpartisan Tax Foundation's, a research group whose work has been embraced by Trump and House Republicans.

The Tax Foundation estimates that the House Republican tax plan would lead to a 9.1 percent higher gross domestic product over the long term, 7.7 percent higher wages and 1.7 million new full-time-equivalent jobs. It predicts the plan would reduce government revenue by $2.4 trillion over a decade, not counting macroeconomic effects, but by only $191 billion once economic growth is taken into account.

By contrast, the centrist Tax Policy Center estimates the House plan would add 1 percent to GDP over 10 years and erase $2.5 trillion of revenue, even with positive macroeconomic feedback, due to higher federal debt interest.

By David Morgan

(Editing by Kevin Drawbaugh and Leslie Adler)