Economy

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An EU flag flutters during an anti-Brexit demonstration outside the Houses of Parliament in London
FILE PHOTO: An EU flag flutters during an anti-Brexit demonstration outside the Houses of Parliament in London, Britain January 28, 2019. REUTERS/Hannah McKay

March 18, 2019

By Huw Jones

LONDON (Reuters) – Euro-denominated government bond, repurchase agreement and foreign exchange trading at CME Group has moved from London to Amsterdam to avoid disruption from Brexit, the exchange said on Monday.

CME Group, one of the world’s biggest exchanges, set up new units in the Dutch financial capital to avoid European Union customers being disrupted by whatever form Britain’s departure from the bloc takes.

Clearing of its euro repo trades at London Stock Exchange’s LCH unit in London had already moved to LCH’s Paris arm in order to be inside the EU after Brexit.

Migration of trading and clearing is a blow to London as a global financial center, with more business to follow the Chicago-headquartered exchange.

While Brexit is due to take place on March 29, it now looks increasingly likely that it will be delayed.

Cboe Europe, the largest pan-European share trading platform, plans to move euro-denominated share trading from London to a new unit in Amsterdam, with trading starting on April 1.

But Cboe Europe said last week it was “closely monitoring” political discussions and would react as quickly as possible to any developments that would alter this launch date.

Britain’s government is scrambling to get support in parliament for a Brexit deal ahead of an EU summit on Thursday.

Separately on Monday, EuroCCP, a clearing house for stock trades, said it had obtained regulatory approval to clear trades for the new EU entities of Cboe Europe, Aquis Exchange, and London Stock Exchange’s Turquoise from April 1.

EuroCCP said it had also “on-boarded” six new EU-based entities acting as clearing members, and more than 10 new EU-based trading members.

EuroCCP, which clears over 30 percent of European share trades, is incorporated in the Netherlands and owned by Dutch Bank ABN Amro, Cboe Europe, Euronext, Nasdaq, and the U.S. Depository Trust & Clearing Corp (DTCC).

The announcement means that a large chunk of clearing in euro-denominated share trades, currently handled by EuroCCP and rivals like LCH in London, is also set to move to Amsterdam.

Clearing refers to a third party that ensures completion of a trade even if one side goes bust.

EuroCCP said it would activate the new clearing arrangements in EU-listed securities as soon as the new EU-based venues are ready

“While the uncertainty continues and despite the increasing likelihood that there may be a delay to Brexit, we are still focused on our preparations in case the UK leaves the EU on 29 March,” said EuroCCP Chief Executive Cécile Nagel.

Aquis is opening a new hub in Paris for trading euro-denominated shares, while the Turquoise unit is in Amsterdam.

(Reporting by Huw Jones; Editing by Louise Heavens/Mark Heinrich)

Source: OANN

A general view is seen of the London skyline from Canary Wharf in London
FILE PHOTO: A general view is seen of the London skyline from Canary Wharf in London, Britain, October 19, 2016. REUTERS/Hannah McKay

March 18, 2019

By William Schomberg

LONDON (Reuters) – Britain will launch a new set of early warning indicators aimed at spotting the next big economic downturn more quickly, based on the volume of road traffic, businesses’ value-added tax returns and how long ships spend in port.

The Office for National Statistics has been under pressure to use more of the digital data created by businesses and consumers which other statistics agencies are streaming into their measurements of the economy.

The Bank of England is likely to pay attention too, as it is trying to improve its understanding of early signals coming from Britain’s economy as it navigates Brexit.

“Policymakers and analysts demand faster insight into the state of the UK economy in order to make informed, timely decisions on matters such as the setting of interest rates,” said Louisa Nolan, the ONS’s lead data scientist.

The ONS said its new indicators would be launched in April and in many cases they would be available a month earlier than gross domestic product data, the main measure of how fast an economy is growing or shrinking.

The ONS cautioned against using the new indicators as predictors of GDP but said they would be able to identify large changes to economic activity.

A new VAT index, which will show whether businesses are seeing more or less turnover, would have spotted the first quarter of the 2008-09 recession in Britain five months before it showed up official estimates, although GDP figures have been improved since then, the ONS said.

There was a “surprisingly good correlation” between the ONS’s shipping indicators and imports, while traffic counts for heavy goods vehicles in England were consistent with at least some economic events, such as the financial crisis.

The traffic flows numbers might also help to measure how much Britain’s economy can grow without creating excessive inflation pressure, the ONS said.

(Reporting by William Schomberg, editing by David Milliken)

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Cars for export stand in shipping terminal at harbour in Bremerhaven
FILE PHOTO: Cars for export stand in a parking area at a shipping terminal in the harbour of the northern German town of Bremerhaven, late October 8, 2012. REUTERS/Fabian Bimmer

March 18, 2019

FRANKFURT (Reuters) – German economic growth remained subdued in the first quarter, dragged down by weak industrial production, falling export demand for cars and deteriorating manufacturing sentiment, the Bundesbank said in a monthly report on Monday.

Struggling with unexpected weakness in among its car manufacturers, Germany barely escaped a recession last quarter. Fresh indicators suggest any recovery will be slow, at best, a drag on growth across the entire euro zone.

Car manufacturing suffered this quarter from a strike at a key engine plant, but a drop in export orders from outside the euro zone suggests deeper issues, rather than one-off factors, as has been suggested earlier.

“Manufacturing sector could therefore drag down overall economic growth for the third straight quarter,” the Bundesbank said in a regular monthly economic report.

Still, a boom in construction and buoyant private consumption should support the economy during the first quarter, the bank said, noting that employment continues to rise, despite the growth weakness.

“Private consumption, as signaled by the strong increase in retail sales, could pick up again significantly,” the Bundesbank said.

(Reporting by Balazs Koranyi, editing by Larry King)

Source: OANN

Aerial view of containers at a loading terminal in the port of Hamburg
FILE PHOTO: Aerial view of containers at a loading terminal in the port of Hamburg, Germany August 1, 2018. REUTERS/Fabian Bimmer

March 18, 2019

BRUSSELS (Reuters) – The European Union’s trade surplus with the United States and its deficit with China both increased in January, serving as potential fuel for trade conflicts between the world’s largest economies.

The EU surplus in goods trade with the United States expanded to 11.5 billion euros ($13.0 billion) in January, from 10.1 billion in January 2018, EU statistics office Eurostat said.

With China, the EU deficit also increased to 21.4 billion euros, from 20.8 billion euros a year earlier.

U.S. President Donald Trump has complained repeatedly about Europe’s trade surplus with his country, imposing tariffs to curb imports of EU steel and aluminum and threatening to do the same for the much larger trade in cars and car parts.

China’s trade surplus with the European Union is also a source of tension between the two, with the bloc taking a firmer line toward Beijing, for example setting out a 10-point plan to balance economic ties and pushing China to open up

As a whole, the EU trade deficit in goods was 24.9 billion euros in January from 21.4 billion euros in January 2018. For the euro zone, its trade surplus dropped to 1.5 billion euros from 3.1 billion euros.

On a seasonally adjusted basis, the euro zone’s overall surplus rose slightly on the month and the EU’s trade deficit dipped in January compared with December 2018.

(Reporting by Philip Blenkinsop; editing by Francesco Guarascio)

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South African tycoon Christo Wiese gestures during an interview in Cape Town
FILE PHOTO: South African magnate Christo Wiese, whose companies include Steinhoff and investment heavyweight Brait, gestures during an interview in Cape Town, South Africa, September 27, 2016. REUTERS/Mike Hutchings

March 18, 2019

JOHANNESBURG (Reuters) – Former Steinhoff chairman and top shareholder Christo Wiese is open to negotiations over his 59 billion rand ($4.08 billion) claim against the scandal-hit company, he said on Monday.

“Everybody knows, the company does not have that kind of money, so our approach has been that the only way forward is for all the stakeholders to sit around the table and reconstruct the company,” Wiese told Reuters.

The South African retailer said on Friday that an independent report had found it had overstated profits over several years in a $7.4 billion accounting fraud involving a small group of top executives and outsiders.

(Reporting by Tiisetso Motsoeneng)

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FILE PHOTO: The logo of the Organization of the Petroleum Exporting Countries (OPEC) is seen outside their headquarters in Vienna
FILE PHOTO: The logo of the Organization of the Petroleum Exporting Countries (OPEC) is seen outside their headquarters in Vienna, Austria December 7, 2018. REUTERS/Leonhard Foeger/File Photo

March 18, 2019

By Vladimir Soldatkin, Rania El Gamal and Nailia Bagirova

BAKU (Reuters) – OPEC is set to scrap its planned meeting in April and decide instead whether to extend oil output cuts in June, when the market will be able to assess the full impact of U.S. sanctions on Iran and the crisis in Venezuela.

A ministerial panel of OPEC and its allies recommended on Monday that they cancel the extraordinary meeting scheduled for April 17-18, which means the next regular talks would be held on June 25-26.

The energy minister of OPEC’s de facto leader, Saudi Arabia, said over the weekend that the market was looking oversupplied until the end of the year but that April would be too early for any decision on output policy.

“The consensus we heard … is that April will be premature to make any production decision for the second half,” the Saudi minister, Khalid al-Falih, said on Monday.

“As long as the levels of inventories are rising and we are far from normal levels, we will stay the course, guiding the market toward balance,” he added.

The United States has been increasing its own oil exports in recent months while imposing sanctions on OPEC members Venezuela and Iran in an effort to reduce those two countries’ shipments to global markets.

Washington’s policies have introduced a new level of complication for the Organization of the Petroleum Exporting Countries as it struggles to predict global supply and demand.

“We are not under pressure except by the market,” Falih told reporters before the Joint Ministerial Monitoring Committee (JMMC) meeting in the Azeri capital, Baku, when asked whether he was under U.S. pressure to raise output.

U.S. President Donald Trump has been a vocal critic of OPEC, blaming it for high oil prices. Many OPEC members have said Trump’s sanctions policies have elevated the market.

OPEC and its allies agreed in December to cut output by 1.2 million barrels per day – 1.2 percent of global demand – during the first half of this year in an effort to boost prices.

The JMMC, which also includes non-OPEC Russia, monitors the oil market and conformity with supply cuts.

Asked if he had been updated on whether Washington would extend its waivers for buyers of Iranian crude, which are due to end in May, Falih said: “Until we see it hurting consumers, until we see the impact on inventory, we are not going to change course.”

Inventory levels and oil investments are the two main factors guiding OPEC’s action, Falih said, adding that oil industry estimates show that $11 trillion of investments will be needed over the coming two decades to meet demand growth.

Oil inventories in developed countries continue to fluctuate, he said.

“Our goal is to bring global inventory levels down to more normal levels – and even more importantly, to proactively protect against a glut,” he said.

“Another important metric is the state of oil investments … we are not seeing an investment trend that will get us even closer to the required figures.”

(Writing by Nafisa Eltahir and Dmitry Zhdannikov; Editing by Dale Hudson and Louise Heavens)

Source: OANN

Chinese Foreign Minister Wang Yi attends a meeting with EU High Representative for Foreign Affairs and Security Policy Federica Mogherini in Brussels
Chinese Foreign Minister Wang Yi attends a meeting with EU High Representative for Foreign Affairs and Security Policy Federica Mogherini (not pictured) in Brussels, Belgium March 18, 2019. REUTERS/Yves Herman

March 18, 2019

BRUSSELS (Reuters) – The European Union will seek Beijing’s agreement for deadlines to open up China’s economy at an April 9 summit in Brussels, according to a draft leaders’ statement, trying to coax it into making good on promises to deepen trade ties.

China and the EU will “agree by summer 2019 on a set of priority market access barriers and requirements facing their operators,” according to a six-page joint communique drafted by the EU, which still requires Chinese approval.

The statement, seen by Reuters, is set to be formally released at the of the summit between Chinese Premier Li Keqiang, European Commission President Jean-Claude Juncker and European Council President Donald Tusk.

(Reporting by Robin Emmott; editing by Philip Blenkinsop)

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FILE PHOTO: Signage is seen outside the entrance of the London Stock Exchange in London
FILE PHOTO: Signage is seen outside the entrance of the London Stock Exchange in London, Britain. Aug 23, 2018. REUTERS/Peter Nicholls/File Photo

March 18, 2019

(Reuters) – European stocks extended a recent run of gains on Monday, helped by a jump in shares in German lenders Deutsche Bank and Commerzbank after they confirmed over the weekend they were in talks to merge.

Deutsche Bank’s shares rose 3.4 percent and Commerzbank’s shares jumped 5.4 percent, lifting Europe’s banking sector by 0.6 percent.

The banks issued short statements following separate meetings of their management boards, indicating a quickening of pace in the merger process, although both also warned that a deal was far from certain.

They topped the gainers on the pan-European STOXX 600 index, which gained 0.14 percent at 0823 GMT, surpassing a five-month closing high it hit on Friday on the back of hopes of a less chaotic Brexit and progress in U.S.-China trade talks.

London’s FTSE 100 outperformed its euro-peers with a 0.3 percent gain at the start of a week that is expected to see parliament voting for a third time on Prime Minister’s Theresa May’s Brexit plan after ruling out a near-term no-deal exit.

Among other individual movers, Germany’s automotive cable and wiring system specialist Leoni sank almost 20 percent to its lowest in nearly nine years after the company abandoned a 2019 profit target it issued just last month, unveiled job cuts as well as possible divestments and said its finance chief would quit.

Boeing’s Frankfurt-listed shares dropped 2 percent after the Seattle Times reported the plane maker’s safety analysis of a new flight control system on MAX jets, one of those that crashed last week in Ethiopia.

(Reporting by Sruthi Shankar and Agamoni Ghosh in Bengaluru; editing by Josephine Mason)

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FILE PHOTO: U.S. Representative Ocasio-Cortez and Senator Markey hold a news conference for their proposed
FILE PHOTO: U.S. Representative Alexandria Ocasio-Cortez and Senator Ed Markey hold a news conference for their proposed “Green New Deal” to achieve net-zero greenhouse gas emissions in 10 years, at the U.S. Capitol in Washington, U.S., Feb. 7, 2019. REUTERS/Jonathan Ernst/File Photo

March 18, 2019

By Julien Ponthus, Tommy Wilkes and Ritvik Carvalho

LONDON (Reuters) – Having spent three years and more than 2.6 trillion euros ($3 trillion) trying to boost economic growth across the euro zone, the European Central Bank’s mixed record may open the door for a high-spending, radical alternative.

With populist and anti-austerity parties looking to build support before European parliamentary elections in May just as growth withers, so-called Modern Monetary Theory (MMT) is challenging conventional thinking on debt, deficits and how economies should be run.

Popularized by Alexandria Ocasio-Cortez, a rising star of the American left, MMT posits in essence that a country with the ability to print its own currency can create and spend money freely, so long as inflation is kept under control.

The country can’t be forced into defaulting on its debts since it can always print money to pay creditors, the theory runs.

It’s music to the ears of European populists demanding a ramp-up in public spending to fight unemployment and finance social programs. Years of central bank quantitative easing (QE), they say, have done little except inflate financial asset prices.

MMT is about financing government spending and the real economy, its advocates say, while QE is solely designed to stimulate financial markets through massive purchases of private and public bonds on the secondary market.

MMT is unlikely to be put into practice in the euro zone any time soon. Rules of the currency area make it impossible for member states to print money unilaterally, and mainstream policymakers have derided the economics behind it.

Former U.S. Treasury Secretary Larry Summers has called MMT “voodoo” thinking.

But the ideas underpinning the theory are helping shape an ideological push against European fiscal orthodoxy and policymakers’ reluctance to consider big public debt-funded investment schemes.

“Post-European elections, there will be much more talk at a European level of (fiscal) spending and stimulus,” John Roe, a fund manager at Legal & General Investment Management, Britain’s biggest asset manager, told Reuters.

NEW DEAL

Roe noted calls for a vast publicly funded “Green New Deal”, as touted by some left-wing U.S. Democrats, are yet to materialize in Europe. But demands for such a policy remain a possibility which investors should take seriously.

The ECB’s admission this month that QE had failed to lift inflation and economic growth, and that it would leave interest rates at rock-bottom until at least 2020, leaves it vulnerable to calls for a drastic rethink.

“Real-world Modern Monetary Theory, defined as the monetization of large public deficits by the central bank, would be most advisable in the eurozone,” even if close to impossible to implement in the bloc, said Vincent Deluard, an analyst at financial advisory firm INTL FCStone.

(GRAPHIC: Euro zone growth and inflation – https://tmsnrt.rs/2UwLSzu)

POPULIST ROUTE

With talk of Europe slipping into a spiral of “Japanification”, a combination of weak growth and low inflation, pressure is building for fresh policy approaches, although advocates of MMT are yet to appear in European discourse as frequently as they have in the United States.

That could be about to change.

“People are assuming that if there’s a continued European economic slowdown after the European elections, European politicians will say Europe needs more infrastructure and they think they can print money at no extra cost”, said Saxo Bank’s chief investment officer Steen Jakobsen.

There have already been some moves towards an MMT-type approach.

British opposition leader Jeremy Corbyn in 2015 proposed “people’s QE”, a government-directed central bank-financed scheme to fund infrastructure.

More recently, Italy’s ruling parties have been in a standoff with Brussels over their desire to end an EU-imposed fiscal straightjacket and spend more to revive a struggling economy.

French President Emmanuel Macron has beefed up public spending to defuse violent “yellow vest” street protests.

In a research note titled “The age of rage, what populism means for markets”, Rabobank market strategist Michael Every said investors should expect populist parties to use MMT to bolster their calls for higher public spending.

Markets should “to prepare for a far higher risk of truly paradigmatic shifts ahead”, Every warned.

ECONOMIC COLLAPSE

Little of this means much unless politicians ready to rip up the macroeconomic rulebook can make it into office. And the financial establishment is unsurprisingly near universal in its condemnation.

They argue that governments let loose to print money can set off a spiral into hyperinflation and economic collapse.

“The general idea that government debt can be financed by central banks is a dangerous proposition”, ECB chief economist Peter Praet said in a recent online Q&A.

“In the past, this has resulted in hyperinflation and economic turmoil”, Praet said, adding: “That’s why central banks are independent”.

A poll http://www.igmchicago.org/surveys/modern-monetary-theory conducted by the University of Chicago Booth School of Business found that 88 percent of economic experts disagreed with the idea that countries able to borrow in their own currencies need not worry about government deficits because they can always print money to finance their debts.

Bank of Japan Governor Haruhiko Kuroda, a fiscal hawk, has also slammed MMT, calling it an “extreme argument that won’t be accepted widely.”

(GRAPHIC: MMT poll – https://tmsnrt.rs/2UAFmHZ)

UNLIKELY EVENTS

The debates around MMT might seem unlikely to rouse the average European, but interest is growing – “MMT” is a more searched term on Google than “ECB”.

For an interactive version of the below chart, click here https://tmsnrt.rs/2O4KOAd.

In a newsletter, East West Investment Management analyst Kevin Muir noted widespread anger among electorates in leading economies, arguing: “Monetary stimulus with fiscal austerity doesn’t do anything except make the rich richer.”

And while MMT might sound like a political and economic fantasy, some economists warn against discounting the momentum of populist waves: Britain’s vote to leave the EU and the election of Donald Trump had both been viewed as improbable.

Societe Generale analyst Albert Edwards believes that the next recession is likely to see the normalization of ideas such as the “People’s QE” proposed by Britain’s Corbyn, where money “just doesn’t get thrown (like) … confetti in the financial markets but is actually channeled into tax cuts or into public investment projects”.

(Additional reporting by Josephine Mason, Karin Strohecker, Helen Reid and Abhinav Ramnarayan; Editing by David Holmes)

Source: OANN

A room is seen at UCommune coworking space in Shanghai
A room is seen at UCommune coworking space in Shanghai, China March 7, 2019. Picture taken March 7, 2019. REUTERS/Aly Song

March 18, 2019

By Clare Jim and Brenda Goh

HONG KONG/SHANGHAI (Reuters) – Co-working space operators in China are shifting their focus from ambitious expansion plans to services such as customizing offices for clients, as rising vacancy rates and tighter financing slow their exponential growth of the past two years.

The strategy shift marks a turn of fortunes for the Chinese co-working industry, whose rapid expansion has helped operators such as Ucommune, MyDreamPlus and Kr Space raise hundreds of millions of dollars.

The combined area of co-working space in four first-tier cities in China surged by almost 60 percent between the end of 2017 and October last year, according to industry association China Real Estate Chamber of Commerce.

However, 40 percent of the co-working centers were more than half empty as of October and 40 co-working brands had shut in the first 10 months of 2018, it added.

“There’s a shake-out in the flexible office space,” said Paul Salnikow, global CEO of The Executive Center, which entered China in 2001 and currently operates 45 premium flexible working centers in nine Chinese cities.

“Since November, we’ve seen operators in China walking away from centers, trying to give it back to the landlord. We’ve been offered furniture from some of these people, saying they’re trying to raise money.”

A common solution for firms appears to be diversification into services that require less capital investment, such as office design and management.

“Our focus this year is ‘management output’,” Mao Daqing, founder of Ucommune, one of the largest co-working space operators in China, told Reuters.

The company expected to partner with enterprise clients and open another 30 flexible working centers for them this year, providing design and management services, from 15 currently, he said. Ucommune’s own branded centers would add five to 10 more to the over 200 already in place.

U.S.-based WeWork started providing such services in China last year and also plans to grow the business.

One industry executive who declined to be identified told Reuters the asset-light model helped to shift rental costs to clients, boosting income.

LANDLORDS AT RISK

A survey of Chinese flexible working space operators by real estate consultancy CBRE in January found that around 68 percent planned to slow or halt expansion this year.

But the rise in vacancy rates and operators dropping out of the business could also spell trouble for Chinese office landlords, especially in major cities like Shanghai where co-working is more common than the rest of Asia-Pacific.

“Co-working operators need to go further asset-light and slow one-off CAPEX investment to stay in operation,” said Virginia Huang, CBRE Greater China managing director of advisory and transaction services.

“What this means is landlords also share some risks of this industry, not only the operators.”

Terms of underwriting co-operating operators are also changing, with landlords bearing more costs and risks.

Stanley Ching, Citic Capital’s head of property, said operators were increasingly seeking fit-out subsidies and leasing on profit-sharing models with landlords, as they become more reluctant to pay high rents to secure space.

LaSalle Investment Management, which rents space to co-working operators in China, said picking the right operators and limiting exposure was crucial.

“They’re not recession-proof yet; they haven’t gone through a recession, we don’t know who’s going to survive or who’s not,” said Elysia Tse, LaSalle IM Asia Pacific head of research and strategy.

“So we’ll make sure our portfolio of co-working tenants is a small minority portion.”

One positive trend for co-working operators is the growth in demand from larger corporates amid China’s broader economic slowdown.

“As companies’ outlook on the economy turns conservative and they want to save office costs, they turn to co-working space which provides flexibility,” said Ucommune’s Mao.

“Our clients for office design service also increased for this reason.”

(Reporting by Clare Jim and Brenda Goh; Additional reporting by Shanghai newsroom; Editing by Stephen Coates)

Source: OANN


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