Reuters News - Global shares hit fresh peak, oil up on Middle East tensions

 LONDON (Reuters) - Global shares rose for the 11th day in a row to reach a fresh peak on optimism about the rollout of COVID-19 vaccines and new fiscal aid from Washington, while tensions in the Middle East drove oil to a 13-month high.

As more people are vaccinated across key markets such as the United States, and with U.S. President Joe Biden looking to pump an extra $1.9 trillion in stimulus into the economy, the so-called reflation trade has gathered steam in recent days.

On Friday, the Cboe Volatility Index, known as Wall Street’s “fear gauge”, ended at its lowest level for nearly a year, helping to drive a 0.4% gain for MSCI’s broadest measure of world stocks on Monday.

Taking its cue from a stronger, albeit holiday-thinned, Asian session, Europe’s major indexes were a sea of green in early deals, with Britain’s FTSE 100 up 2.2%.

With China and Hong Kong markets closed for the Lunar New Year holiday, Japan’s Nikkei led the way, climbing 1.9% to reclaim the 30,000-point level for the first time in more than three decades.

E-mini futures for the S&P 500 were also higher, up 0.5%, although U.S. stock markets are closed on Monday for the Presidents Day holiday.

Later in the week, all eyes will be on the release of minutes from the U.S. Federal Reserve’s January meeting, where policymakers decided to leave rates unchanged, for hints about the likely direction of monetary policy.

Those concerned about the impact of market exuberance on the outlook for inflation will also have fresh data to parse, with Britain, Canada and Japan all due to report. Friday will also see major economies, including the United States, release preliminary February purchasing managers’ indexes (PMI).

“We believe investors should prepare for bouts of volatility ahead, but regard them as opportunities rather than threats,” said Mark Haefele, chief investment officer at UBS Global Wealth Management. “We recommend investors stick to their long-term financial plans, and continue to put excess cash to work.”

Oil joined equity markets in pushing higher, reaching its highest level since January 2020 on hopes U.S. stimulus will boost the economy and fuel demand and after a Saudi-led coalition fighting in Yemen said it intercepted an explosive-laden drone fired by the Iran-aligned Houthi group. [O/R]

Brent crude rose 1.2% to $63.15 a barrel. U.S. crude oil gained 1.2% to $60.21, just off earlier highs.

With risk assets in favour, safe havens dipped, with gold down 0.2% to $1,819 an ounce. Germany’s 10-year Bund yield rose 4 basis points to a 5 1/2-month high at -0.376% and 30-year bond yields, up 20 bps so far this month, rose to an eight-month high at 0.13%. They had traded in negative yield territory earlier this month.

Switzerland’s 30-year government bond yield, meanwhile, rose above 0% for the first time since early 2020.

The dollar remained near two-week lows as traders took a more cautious view of the pace of the U.S. economy’s rebound. Against a basket of currencies it was last down around 0.1%.

Bitcoin, meanwhile, recovered some of its overnight weakness to trade down 1.8% at $47,801.18, below a record high of $49,714.66.

Additional reporting by Dhara Ranasinghe; editing by Jacqueline Wong, Alex Richardson, Larry King

BBC News - UK economy poised like a coiled spring, says Bank economist

 

The UK economy is like a "coiled spring" ready to release large amounts of "pent-up financial energy", the Bank of England's chief economist has said.

Andy Haldane said consumer confidence would surge back thanks to the vaccine programme, with the economy firing "on all cylinders" by spring.

He is the latest economist to forecast a sharp rebound in growth after an expected easing of restrictions.

The economy is currently set to shrink 4.2% in the first three months of 2021.

Writing in the Daily Mail, Mr Haldane said: "With 13 million of the most vulnerable people already vaccinated, the risk of death or hospitalisation in the UK has already probably halved.

"By the end of March, based on the current pace of vaccine rollout and government data on vulnerable groups, this risk may have been reduced by as much as three-quarters and by the end of the second quarter it will be even smaller."

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As a result, he said health concerns would fall and restrictions lift, allowing people to return to spending and socialising.

The turn in sentiment was likely to be rapid, he added - "a light-switch being flicked rather than a dimmer-switch being turned".

"Having been bottled in for a year, most people are desperate to get their lives, including their social lives, back.

"When given the opportunity to do so safely, they will seize it," he said.

He said shared social experiences - from pubs to sports to cinema - would benefit, as glimpsed last summer during the Eat Out to Help Out scheme.

Strong household finances

And unlike past recessions, he added, many UK households had strengthened their finances during lockdown and would have more money to spend.

"That might mean two pub, cinema or restaurant visits a week rather than one," he said.

"It might mean a higher-spec TV or car or house."

On top of this he said a significant number of companies had amassed cash during the crisis, which would likely be invested as restrictions started to ease.

"That would be good news for jobs, helping to recover some of the million lost so far in this crisis," Mr Haldane wrote.

"And it would be good news for business investment too, helping companies boost their performance and productivity - and, ultimately, the pay of their workers."

With continued government support added to the mix, he said a strong bounce-back was assured.

"The economy is poised like a coiled spring. As its energies are released, the recovery should be one to remember after a year to forget."

Reuters News - Shift to green energy 'could cost oil states $13 trillion' by 2040

 

A new report says that oil and gas producing countries face a multi-trillion-dollar hole in their government revenue.

The report from the think-tank Carbon Tracker looks at the financial impact as the world cuts back on fossil fuels.

It says some countries could lose at least 40% of total government revenue.

It estimates the cumulative total revenue loss for all oil-producing countries by 2040 will be $13 trillion (in 2020 dollars).

That is as efforts to contain the rise in global temperatures drive the decarbonisation of energy supplies.

Carbon Tracker describes its report as a wake-up call to oil producing countries and international policymakers. It says they have planned on the basis that demand for oil will increase until 2040.

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But the agency warns that demand will have to fall to meet climate targets, and oil prices will be lower than oil producers and the industry currently expect.

The report looks at what would happen to government revenues if the increase in global temperature is limited to 1.65C.

The $13 trillion figure for lost revenue is compared with what it calls "business as usual" expectations of continued growth. It includes countries whose economies are not dominated by oil - such as the UK, the US, India and China.

The main focus of the report, however, is a group for which the loss of oil income will be much more challenging, 40 countries it calls "petrostates".

The predicted damage to government finances in these nations is stark; an average loss of 46% of oil and gas revenue.

The dependence on oil and gas revenue is very marked for some countries - more than 80% for Iraq and Equatorial Guinea. For another seven including Saudi Arabia the figure is more than 60%.

Some countries face very large losses of total revenue. For seven countries, including Angola and Azerbaijan the predicted loss is at least 40%. For another 12, including Saudi Arabia, Nigeria and Algeria it is in the range of 20% to 40%.

For some in the Middle East and North Africa, the effect is moderated somewhat because their low production costs would give them a more prominent role in global oil and gas supply.

There is also a concern about what the report calls emerging petrostates. What they have to confront is a loss of potential revenue from oilfields where development is planned in the coming years. Ghana, Uganda and Guyana are among the countries facing this risk.

'Diversification'

Some of the countries facing severe losses - from existing or potential oil and gas production - are among the poorest.

The report says diversification - of government revenue and national economies - is an urgent task. That will need to be tailored to the needs of each individual country but there are some steps it suggests will be of widespread use.

These include investing in education and improving the quality of government and the climate for business. Capital that is not invested in oil and gas can instead be used to invest in industries that are more resilient to the energy transition.

The report also says there is a strong case for the rest of the world to support this transition. It says there are moral reasons to do so as many of the countries concerned are so poor.

It would help get better climate outcomes. It could also help address the risk of petrostates becoming less stable. They could see social unrest as spending is cut or underfunded security services struggling to contain existing threats.

BBC News - Brexit worse than feared, says JD Sports boss

 

The boss of one of Britain's big retailers says Brexit has turned out to be "considerably worse" than he feared.

Peter Cowgill, chairman of JD Sports, said the red tape and delays in shipping goods to mainland Europe meant "double-digit millions" in extra costs.

He told the BBC JD Sports may open an EU-based distribution centre to ease the problems, which would mean creating jobs overseas and not in the UK.

The government said it is providing businesses with support.

Mr Cowgill's criticism echoes that from exporters and importers across the UK.

New UK-EU trade rules came into operation on 1 January. But since then, there has been growing concern from businesses as diverse as seafood exporters from Scotland and food suppliers shipping products to Northern Ireland.

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Mr Cowgill told the BBC's World at One that there is no true free trade with the EU, because goods that JD Sports imports from East Asia incur tariffs when they go to its stores across Europe.

He said: "I actually think it was not properly thought out. All the spin that was put on it about being free trade and free movement has not been the reality.

"The new system and red tape just slows down efficiency. The freedom of movement and obstacles are quite difficult at the moment. I don't see that regulatory paperwork easing much in the short term," Mr Cowgill said.

'Bizarre'

Opening a big warehouse distribution centre in mainland Europe "would make a lot of economic sense," he said. He estimated such a facility would employ about 1,000 people.

While JD Sports' existing warehouse in Rochdale would not close, "it would mean the transfer of a number of jobs into Europe," Mr Cowgill said.

He also warned that the UK needed a complete overhaul of business rates and rents if the High Street was to survive. "It is basic economics," he said. "Bricks and mortar retailing is becoming uneconomic."

Mr Cowgill had particular criticism for the government's decision-making on forcing non-essential shops to close, while allowing essential shops to stay open.

In reality, that meant supermarkets could sell clothes, while firms such as JD Sports had to shut. "Some essential retailers have been making hay out of selling clothes, whilst clothing retailers have been closed. It is bizarre," he said.

The Cabinet Office said in a statement: "We know that some businesses are facing challenges with specific aspects of our new trading relationship, and that's why we are operating export helplines, running webinars with experts and offering businesses support via our network of 300 international trade advisers.

'We will ensure businesses get the support they need to trade effectively with Europe and to seize new opportunities as we strike trade deals with the world's fastest growing markets and explore our newfound regulatory freedoms."

'Erroneous'

Last weekend, the Road Haulage Association (RHA) said exports to the EU had fallen as much as 68% since 1 January due to Brexit border hold-ups.

But the government has said freight movements are now close to normal levels, despite the Covid-19 pandemic.

On Monday, Cabinet Office Minister Michael Gove told a committee of MPs that the RHA's claims were "erroneous" and "based on a partial survey".

He added that "truer figures" were published on the Cabinet Office website, adding that the port of Dover saw 90% of normal levels of traffic on Monday.

Mr Gove acknowledged that traders faced issues with exports and imports to and from the EU, but said it was "important to put it in context".

Reuters News - Exclusive: Congressional Democrats set to back more than $50 billion for transportation sector

 WASHINGTON (Reuters) - Democrats in the U.S. Congress are to release a sweeping plan on Monday to provide more than $50 billion in additional assistance to U.S. airlines, transit systems, airports and passenger railroad Amtrak and create a $3 billion program to assist aviation manufacturers with payroll costs, according to documents seen by Reuters and sources briefed on the matter.

The $1.9 trillion COVID-19 relief proposal will provide $30 billion to transit agencies, $14 billion for passenger airlines, $8 billion to U.S. airports, $1 billion for airline contractors and $1.5 billion to Amtrak, the draft legislation says. U.S. House committees are set to vote on the legislation on Wednesday.

Airline stocks rose sharply on news of the new funding, with American Airlines up 4.2%, while United Airlines gained 5% and Southwest Airlines jumped nearly 6%.

President Joe Biden had proposed $20 billion for struggling U.S. transit agencies - and nothing for airlines - while Democrats had pushed for more transit help, citing the collapse in travel demand as a result of the COVID-19 pandemic.

Transit agencies have previously been awarded $39 billion in emergency assistance by Congress. New York’s Metropolitan Transit Agency says daily subway travel has recently been down 70% or more.

U.S. airlines have been awarded $40 billion in payroll support since March and airline unions had asked Congress for another $15 billion to keep thousands of workers on the payroll past March 31, when the current round of funding expires. The additional $14 billion will keeping nearly 30,000 airline workers on the job through Sept. 30.

A summary of the $14 billion airline payroll proposal from the House Financial Services Committee seen by Reuters noted airlines lost over $35 billion in 2020 and “airlines do not expect to return to profitability until midway through 2021.

The $3 billion aviation manufacturing program would provide a 50% government subsidy to cover costs of pay, benefits and training for employees at risk of being furloughed or who were furloughed due to the pandemic. The grants cover up to 25% of a company’s U.S. workforce.

U.S. airplane manufacturer Boeing and suppliers have cut thousands of manufacturing jobs over the last year as demand for new planes has shrunk amid the collapse in airline travel.

Boeing said last year it recorded severance costs for 26,000 employees in 2020, with 18,000 having left last year and the remainder expected leave in 2021. Boeing did not immediately comment on the program.

International Association of Machinists and Aerospace Workers (IAM) President Robert Martinez urged lawmakers to back the effort to provide payroll assistance to “help this critical workforce and supply chain weather the storm of this historic pandemic.”

Reporting by David Shepardson, Editing by Franklin Paul and Dan Grebler

Our Standards: The Thomson Reuters Trust Principles.

BBC News - UK and EU in 'constructive discussions' over NI trade row

 

The government and the EU have vowed to "work intensively" to quell tensions over post-Brexit checks at Northern Ireland ports.

In a joint statement, both sides said talks on Wednesday with Northern Ireland leaders were "constructive".

The talks were arranged after checks at some ports were suspended following "sinister" threats made to staff.

UK and EU leaders say they condemn "unreservedly" any threats or intimidation.

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Virtual talks between the Cabinet Office Minister Michael Gove, his EU counterpart, Vice-President Maros Šefčovič and Northern Ireland's leaders were held on Wednesday amid an escalating row over applying new trade rules for Northern Ireland.

The dispute has arisen because, under the Brexit agreement with the EU, some products entering Northern Ireland from Great Britain must be checked on entry.

That is because unlike the rest of the UK, Northern Ireland has remained in the single market for goods.

As a result, some food supplies and online shopping deliveries from Great Britain to Northern Ireland have been subject to delays and staff carrying out inspections have reported threats.

Tensions were also heightened when the EU threatened emergency controls of Covid vaccine exports on the Irish border - a move the bloc later withdrew.

'Priority'

In a joint statement, Mr Gove and Mr Šefčovič said they would "work intensively to find solutions to outstanding issues".

The UK government and EU Commission reiterated their full commitment to the Good Friday Agreement, and to the "proper implementation" of the Northern Ireland protocol.

Both leaders said they condemned unreservedly any threats or intimidation, and stressed that "the safety and welfare of the people of Northern Ireland" would always be the "utmost priority."

The BBC's political editor, Laura Kuenssberg, says sources told her "there wasn't much progress" but both sides have agreed to keep talking.

The source added that the EU wasn't in "sackcloth and ashes" after it temporarily suspended agreements made as part of the Brexit deal last Friday.

The UK government has called for temporary lighter enforcement of the rules to be extended until early 2023.

However writing in the Daily Telegraph, Northern Ireland's First Minister and DUP leader Arlene Foster warned that simply extending grace periods for businesses would not solve the problem.

She said the Northern Ireland Protocol - the arrangements for the Irish border - "cannot work" and must be replaced.

Deputy First Minister Michelle O'Neill, from Sinn Fein, called for calm heads and welcomed Mr Šefčovič's intended visit to the UK next week for further talks, saying it was a "very pragmatic and very constructive way" to move forward.

What is the NI protocol?

Part of the Brexit Withdrawal Agreement, the NI protocol guarantees an open border between the EU and Northern Ireland, with no controls on exported products.

It was introduced to avoid creating a hard border on the island of Ireland.

Instead there are checks on some products travelling from Great Britain to Northern Ireland.

This is because Northern Ireland in effect remains part of the EU single market for goods while the rest of the UK has left.

However, Article 16 of the protocol part of the deal allows the EU and UK to choose to suspend any aspects they consider are causing "economic, societal or environmental difficulties".

The EU announced it would trigger the clause to control exports of vaccines to Northern Ireland, but later reversed the decision.

Unionist parties in NI have been pressing the UK government to use Article 16 to reduce checks on goods entering Northern Ireland from Great Britain.