Reuters News - Global stocks ease as gloomy data takes shine off U.S. stimulus hopes

 LONDON/SYDNEY (Reuters) - Global shares slipped off record highs on Friday as gloomy data reminded investors of the struggles facing the economic recovery, curbing a rally fuelled by hopes of U.S. stimulus by newly inaugurated President Joe Biden.

Sentiment in Europe was already more cautious after Thursday’s European Central Bank meeting, in which the bank’s message was perceived as more hawkish than expected.

The yield on Italian 10-year benchmark bonds touched its highest since early November on reports that Prime Minister Giuseppe Conte may be tempted by the prospect of a snap election.

The Euro STOXX 600 was 0.8% weaker as investors digested weaker flash PMI readings for January. Lockdown restrictions to contain the coronavirus pandemic hit the bloc’s dominant service industry.

The FTSE 100 index slipped 0.5% as data showed British retailers struggled to recover in December from a partial coronavirus lockdown the previous month.

The MSCI world equity index, which tracks shares in almost 50 countries, was 0.2% softer following three straight sessions of gains. E-Mini futures for the S&P 500 stumbled 0.53%.

MSCI’s broadest index of Asia Pacific stocks outside of Japan was 0.8% lower.

GRAPHIC: MSCI All Country World Index Market Cap - here

The risk-off mood followed a period of relief after the transition of power in the United States, culminating in Biden’s inauguration on Wednesday and strong expectations that U.S. stimulus will provide continued support for global assets.

“The fact that there would be U.S. stimulus was well known and the size of the package and the very high-level details of what they’re aiming for with the package was well known some while ago,” said James Athey, investment director at Aberdeen Standard Investments.

“The realities of what is likely to be achievable relatively quickly are not supportive of just blindly buying cyclical assets. There’s a lot more nuance and a lot more politics to go on before we get there.”

Republicans in the U.S. Congress have indicated they are willing to work with Biden on his administration’s top priority, a $1.9 trillion U.S. fiscal stimulus plan, though some are opposed to the price tag.

Democrats took control of the U.S. Senate on Wednesday, though they will still need Republican support to pass the program.

China’s composite stock index slid 0.4%, while the blue-chip CSI300 index edged up 0.1%.

Travel plans were in limbo for tens of millions of people in China’s northern cities. They have been under some kind of lockdown amid worries that undetected coronavirus infections could spread quickly during the Lunar New Year holiday, which is just weeks away.

China reported 103 COVID-19 cases on Friday.

In currency markets, the U.S. dollar paused after three straight days of losses, though it was still on track for its biggest weekly loss since mid-December. The currency was flat on the day at 90.118.

The Japanese yen was down around 0.1% against the dollar, at 103.63.

Data from Japan overnight showed that factory activity slipped into contraction in January and the services sector was more pessimistic as emergency measures to combat a COVID-19 resurgence hit sentiment.

The dollar’s recent slide has been led by investors ploughing money into higher-yielding currencies on optimism about a rapid economic recovery led by the U.S. stimulus.

In commodities, oil prices were weighed down by worries that new pandemic restrictions in China will curb fuel demand in the world’s biggest oil importer. [O/R]

Brent crude futures fell 1.2% to $55.41 a barrel. U.S. crude was 1.4% lower at $52.39 per barrel.

Spot gold was down 0.4% at 1,862.3 an ounce.

Additional reporting by Jessica DiNapoli in New York; editing by Shri Navaratnam, Simon Cameron-Moore, Larry King

Our Standards: The Thomson Reuters Trust Principles.

BBC News - Will the UK really refuse trade deals over human rights?

 

The UK is forging its post-Brexit path as a "confident, independent nation - and an energetic force for good", according to the government.

It's free to set trade on its own terms, pursue opportunities and higher living standards. But can it square profit with principle?

Is turning a blind eye to human rights violations worth it to have a trade deal that knocks a couple of quid off the price of an imported shirt?

That New Year's resolution is already being tested, as China falls increasingly out of favour.

Foreign Secretary Dominic Raab has referred to conditions, under which over a million Uighur Muslims are being held in camps and forced into work, as "at the worst... torture and inhumane and degrading treatments".

• 'Price rises likely' due to UK shipping problems
• How many trade deals has the UK done so far?

He warned that British companies will face fines, if they can't show that their supply chains are free from forced labour.

In December, a BBC investigation revealed thousands of Uighurs and other minorities have been compelled to toil in the cotton fields of Xinjiang. The region accounts for a fifth of the world's crop - it's not always easy to tell where your t-shirt hails from.

The UK and Canada have led the charge here, but one wonders how much further can it go.

Mr Raab told the BBC that the UK should not be engaging in free trade negotiations with countries whose record was "well below the level of genocide".

Determining human rights abuses

There are several issues with this: first, working out who gets to decree human rights abuses.

Amendments to the Trade Bill currently going through Parliament would oblige the government to assess the human rights records of potential partners.

One amendment proposes allowing the High Court to declare a genocide in other countries, and forcing the immediate cancellation of trade deals with said nations.

Mr Raab, however, says the decision to declare a genocide can't, and shouldn't be, delegated to the courts. Rather, it's for MPs to hold the government to account over trade deals.

But Labour MPs, who have written to their Conservative counterparts urging them to support the amendments, say they've already been denied powers of scrutiny.

They highlight trade deals rolled over with Egypt, Cameroon and Turkey, with whom the UK previously enjoyed similar deals the EU had struck.

These three countries, they argue, have questionable records on human rights.

And then there's China. The UK is not planning a deal with Beijing and has indicated it won't do a deal with countries that don't share its democratic values.

But both nations have their eye on joining the wider Trans-Pacific Partnership (TPP) agreement.

With imports and exports worth almost £80bn in 2019, China already scores as one of the UK's largest trading partners, and it's not just about frocks and financial services crossing borders.

The question of China

Since Xi Jinping and David Cameron famously sipped a pint in a Buckinghamshire pub in 2015, Chinese investment in the UK has exploded, backing everything from football clubs to restaurant chains.

Now China's appeal has soured, but it may not be easy to back away from encouraging investment, or a trade deal which touts lower import prices and greater opportunities for exporters, when the UK economy is already reeling.

Take textiles - a free trade deal would do away with a 12% tariff on clothes hailing from China. Ultimately, trade deals build on an existing - in this case very lucrative - relationship.

Critics argue it's not enough to refrain from boosting ties with nations with chequered records - they should be lessened.

But it's even harder to snub countries that are already providing jobs for thousands, or items from the frivolous, such as smartphones, to the vital, like billions of PPE items.

Some say the UK has its own issues elsewhere. It resumed the sales of arms to Saudi Arabia last year, after the government said the method for licensing had been reformulated to ensure they wouldn't be used in Yemen. Human rights groups are less sure.

Balancing its quest to be a responsible citizen, together with exploring fresh fortunes, is just one dilemma the UK faces, as it shapes its new identity on the global stage.

Reuters News - The Trump years: Tax cuts and trade wars overshadowed in the end by a virus

 WASHINGTON (Reuters) - From trade wars to tax cuts, from ultra-low unemployment to record highs on stock markets and a high-volume feud with his own Federal Reserve chief, President Donald Trump took the U.S. economy on a wild ride even before the coronavirus drove it off a cliff.

How to sum it up?

The answer as of February 2020 would be different than the answer today. A year ago, the U.S. economy seemed to have settled into a sweet spot of steady growth, low unemployment, low inflation and, finally, rising wages. Trump may have hated the Fed, but in the end the Republican president and the U.S. central bank reached a truce that kept a decade of growth chugging along, and pushed the unemployment rate to a 50-year low.

The pandemic changed all that and will likely leave some deep economic scars. Here’s what stands out:

The Trump years: Labor market

EMPLOYMENT-TO-POPULATION RATIO

Broader than the unemployment rate, the statistic captures the numbers of people not just out of work and looking, but who also who have left the labor force altogether, a particular concern during the pandemic. It had been improving steadily and continued to do so under Trump - until March 2020.

“You see it collapse with the virus shutdown and see it bounce back at a rapid pace, then stall,” said Austan Goolsbee, chair of the Council of Economic Advisers under former President Barack Obama and an economics professor at the University of Chicago’s Booth School of Business. “That basically describes the trajectory of the economy. The biggest cause is obvious. The raging out-of-control nature of the virus, which is absolutely tied to horrible policy mistakes and oversight.”

The Trump years: interest rates

FEDERAL FUNDS RATE

The story of the Trump years can be seen also in the Fed’s benchmark overnight interest rate, also known as the federal funds rate, which was increased as tax cuts and deficit spending led to higher-than-expected economic growth, lowered when a trade war started to grind down global commerce, and cut to near zero when the pandemic hit.

Trump complained mightily about the Fed’s rate increases, and he may have had a point. The central bank, for its own reasons, eventually found its own low-rate religion that worries less about inflation and “overheating,” and won’t likely raise rates again for a long time.

The Fed’s new policy strategy from August 2020 means that “they look back implicitly and see the magnitude of rate hikes in 2017-2018 as a mistake,” said Jason Thomas, head of research at the Carlyle Group. “They fell prey to the models ... What we are seeing right now at the Fed is an effort not to fall into the same trap.”

TRADE WARS

The seeds of “deglobalization” may have been planted well before Trump’s 2016 election victory, and, as the Brexit debate showed, he was not the only politician to exploit the sentiment.

But his willingness to use unilateral tariffs and fight not only with adversaries like China but ostensible allies like Germany rattled the world trade order. He still ended his term with a record U.S. trade deficit, unavoidable perhaps due to the pandemic. But some of his concerns were shared by other countries, for example, over China’s weak enforcement of intellectual property rules.

With not just trade but climate change and other problems on the agenda for the world and President-elect Joe Biden, “a discussion that is more multilateral than bilateral can make more progress,” said Raghuram Rajan, former head of the Reserve Bank of India and a Booth finance professor. “Get trade on the simple, plain vanilla stuff going again ... Difficult areas can be put on a separate track ... China should not feel it is being cornered.”

THE STOCK MARKET

Trump treated the stock market like a scorecard for his presidency, noting new records in tweets and blaming any dips on the Fed, among other supposed villains.

Consider it a story in two chapters, however. Before the pandemic, Trump’s combination of corporate tax cuts and deregulation, coupled with continued economic growth, fueled profits and equity prices. After the pandemic it’s less clear why stocks are supercharged, but the Fed’s promise of low interest rates for many years to come and a flood of pandemic aid into the economy play a role.

“Trump was unusual in tying his policies and interpretations of his policies with” equity prices, said Randall Kroszner, a former Fed governor who is now a Booth professor and deputy dean. “Now people are concerned the Fed’s actions and expected stimulus are driving markets to levels that cannot be sustained ... but it tells you something about the progress of the U.S. economy, tax changes, regulatory changes.”

So was it, in the end, the greatest economy in the history of the United States?

As with many things about Trump, that depends on who’s being asked. It also hinges on whether the frame of reference relates to short-term outcomes, or longer-term questions of sustainability - like the record level of government debt piled up to fund tax cuts and pandemic relief - or fairness, or the quality of public goods like the environment.

For Democrats, at least, attitudes about the economy brightened notably after Biden’s victory in the Nov. 3 election. For Republicans, the mood soured.

Expectations have swung after both recent elections

Reporting by Howard Schneider; Editing by Dan Burns and Paul Simao

Our Standards: The Thomson Reuters Trust Principles.

BBC News - Covid-19: China's economy picks up, bucking global trend

 

China's economy grew at the slowest pace in more than four decades last year, official figures show, but remains on course to be the only major economy to have expanded in 2020.

The economy grew 2.3% last year, despite Covid-19 shutdowns causing output to slump in early 2020.

Strict virus containment measures and emergency relief for businesses helped the economy recover.

Growth in the final three months of the year picked up to 6.5%.

"The GDP data shows the economy has almost normalised. This momentum will continue, although the current Covid-19 outbreak in a couple of provinces in northern China might temporarily cause fluctuation," said Yue Su, principal economist for the Economist Intelligence Unit.

China's mainland share markets as well as Hong Kong's Hang Seng posted modest gains on the latest figures, which exceeded economists' expectations, according to a Reuters poll.

However, Covid-19 was still a major drain on growth in 2020, with nationwide shutdowns of factories and manufacturing plants forcing economic growth down to its slowest rate for four decades.

China's manufacturing sector appears to have recovered, with Monday's data showing a 7.3% increase in industrial output.

Exports have also led the way. Data last week showed Chinese exports grew by more than expected in December, as coronavirus disruptions around the world fuelled demand for Chinese goods.

That is despite a stronger yuan, which makes Chinese exports more expensive for overseas buyers.

Chan's economy has seen a strong rebound, while the rest of the world struggles with anaemic demand, millions of job losses, and businesses shutting down.

China's economic engine roared back to life after a brutal lockdown that saw the Chinese economy contract by a historic 6.8% in the first quarter of 2020.

We should always be circumspect about Chinese data - with the usual caveat that the trajectory of the data rather than the figures themselves are a useful guide to how China's economy is growing.

What these numbers show is that China's strategy of locking down cities hard and quickly has worked.

A combination of government-led investment and global demand for Chinese goods also helped to power a rapid recovery, and boost exports.

Still - this is the lowest rate of annual growth in more than 40 years for the economic giant. Worries over a resurgence of the virus are also clouding China's growth outlook, with consumer demand still weak.

And Beijing is trying to navigate a prickly trade relationship with the US, with the incoming administration unlikely to be softer on China than President Donald Trump.

All of these challenges will no doubt weigh on Chinese growth in 2021 - but they seem to be in a better place than the rest of the world's major economies.

It was not all good news from the latest figures.

Li Wei, a senior economist at Standard Chartered Bank, said pandemic-related exports and credit-fuelled car and housing sales accounted for much of the growth, while domestic demand lagged behind.

"Domestic household consumption of food, clothing, furniture and utilities remains below pre-pandemic levels, while the hospitality and transportation sectors continue to face capacity and travel restrictions," he told Reuter.

Although retail sales grew by 4.6% in the fourth quarter of 2020, they fell by 3.9% for the year.

Many analysts are tipping growth to accelerate in 2021, but the China Bureau of Statistics has warned of a "grave and complex environment both at home and abroad", with the pandemic having a "huge impact".

China still faces many challenges, including continuing trade tensions with the US and how they might play out under the administration of President-elect Joe Biden, who takes office later this week.

BBC News - UK economy shrank by 2.6% in November as services suffered

 

The UK economy shrank by 2.6% in November as England was placed in lockdown for a second time, official figures show.

The Office for National Statistics said it meant gross domestic product was 8.5% below its pre-pandemic peak.

November's decline came after six consecutive months of growth.

Pubs and hairdressers were badly hit as the service sector suffered, the ONS said, but some manufacturing and construction activity improved.

The hit to the service sector - which accounts for about three-quarters of the UK economy - meant it contracted by 3.4% in November, and is now 9.9% below the level of February 2020.

Some economists said the November figure was better than expected, and it appeared many companies were better prepared for the second lockdown, with some sectors staying open for business and many firms having already put in place plans to expand online operations.

"Steps taken by businesses earlier in the year to Covid-proof their operations - combined with the time-limited nature of the restrictions, and schools remaining open - meant more companies were able to continue trading safely," said Alpesh Paleja, lead economist at the CBI employers' group.

Chancellor Rishi Sunak said the figures showed "it's clear things will get harder before they get better and today's figures highlight the scale of the challenge we face".

But he said the vaccine roll-out and economic support measures meant there were reasons to be hopeful. "With this support, and the resilience and enterprise of the British people, we will get through this," he said.

Shadow chancellor Anneliese Dodds said the figures showed the UK has an economic "mountain to climb".

Speaking to the BBC, she said it would be a "serious mistake" if Mr Sunak waited until the Budget in March before providing more support and confidence for business.

ONS director for economic statistics Darren Morgan said: "The economy took a hit from restrictions put in place to contain the pandemic during November, with pubs and hairdressers seeing the biggest impact."

However, he said many firms adjusted to the new pandemic working conditions, such as by expanding click and collect and other online operations.

He added: "Manufacturing and construction generally continued to operate, while schools also stayed open, meaning the impact on the economy was significantly smaller in November than during the first lockdown.

"Car manufacturing, bolstered by demand from abroad, housebuilding and infrastructure grew and are now all above their pre-pandemic levels." Construction activity grew by 1.9% during the month.

What is GDP?

Gross domestic product (GDP) is the sum (measured in pounds) of the value of goods and services produced in the economy.

But the measurement most people focus on is the percentage change - the growth of the country's economy over a period of time, typically a quarter (three months) or a year.

If the GDP measure is up on the previous three months, the economy is growing. That generally means more wealth and more new jobs.

If it is negative, the economy is shrinking.

• What is GDP and why does it matter?

Despite the GDP figure being better than some analysts had forecast, there are still concerns that the UK could be heading back into recession.

Economists have warned the UK could see a double-dip recession if restrictions remain in place in the first three months of 2021.

Rory Macqueen, from the National Institute of Economic and Social Research, said the November figures confirm a significant slowdown in the last quarter of 2020, "despite November's lockdown in England clearly having a far smaller effect than the first".

Recovery

James Smith, research director of the Resolution Foundation, said there would be a lot of comment about whether these figures point to the UK heading for only its second-ever double-dip recession on record.

But, he said, the real "story of the year will be a vaccine-driven bounce back in economic activity for sectors like hospitality and leisure".

"The chancellor must do everything he can to support that recovery once public health restrictions ease," he added.

• Retail sales in 2020 'worst for 25 years'
• UK economy 'to get worse before it gets better'

Analysts at Capital Economics also said there was cause for optimism, saying that the current third lockdown could have less impact than feared.

"The economy has built up a fair bit of immunity to lockdowns, as November's lockdown was much less painful for the economy than the first lockdown.

"As a result, the Covid-19 economic hole is smaller than we thought, the economy may get back to its pre-crisis crisis level a bit sooner and it makes us more confident that the Bank of England probably won't resort to negative interest rates."

The fall in the economy in November was still considerable, but the figures show businesses adapting to difficult conditions. The hit was a fraction of what occurred in the first lockdown last April, and was mainly confined to the service sector, with pubs and hairdressing for example in sharp decline.

Manufacturing and construction largely remained open, as did previously shut public services such as schools. By November car manufacturing and house building were back above the level of output before the pandemic.

The trade figures also showed a £7bn increase in EU imports in the three months to November as traders stockpiled car parts, medicines and other goods ahead of the end of the Brexit transition period.

The renewed regional tiered restrictions in December, and more severe national lockdowns this month, still indicate a possible return to overall recession in this tough winter.

Business groups continue to argue that extra support is required to support jobs and cash flow well before the Budget in March. But a more sustained lifting of restrictions as vaccines are rolled out should see growth return after the spring.