Friday, 19 July 2019

EU is 'unimpressed' by threats of no-deal Brexit

LONDON (Reuters) - The EU’s chief Brexit negotiator said in an interview to be published on Thursday that he was unimpressed by threats of no-deal Brexit but that if the United Kingdom opted for such a course it would have to face the consequences.

Asked by the BBC what would happen if London tore up its EU membership card, Michel Barnier said: “The UK will have to face the consequences.”

Outrageous to suspend parliament in October over no-deal Brexit: minister
“I think that the UK side, which is well informed and competent and knows the way we work on the EU side, knew from the very beginning that we’ve never been impressed by such a threat,” Barnier said. “It’s not useful to use it”.

Barnier spoke to the BBC before Britain’s Conservative Party leadership contest. Boris Johnson, who is the frontrunner in the contest to replace Prime Minister Theresa May, has pledged to leave the EU with or without a deal on Oct. 31.

If Johnson wins, the three-year Brexit crisis could deepen as the EU has refused to countenance changing the Withdrawal Agreement and the British parliament could try to block a no-deal Brexit.

Barnier said the Withdrawal Agreement “is the only way to leave the EU in an orderly manner”.

EU Commission’s first vice-president, Frans Timmermans, told the BBC that UK ministers were “running around like idiots” when they arrived to negotiate Brexit in 2017.

Timmermans said he was shocked by the standard of the British negotiation after initially expecting a brilliant show.

“We thought they are so brilliant,” he said. “That in some vault somewhere in Westminster there will be a Harry Potter-like book with all the tricks and all the things in it to do.”

But then: “I thought, ‘Oh my God, they haven’t got a plan, they haven’t got a plan.’”

“Time’s running out and you don’t have a plan. It’s like Lance Corporal Jones, you know, ‘Don’t panic, don’t panic!’ Running around like idiots.”

Reporting by Guy Faulconbridge

G7 finance chiefs pour cold water on Facebook's digital coin plans

CHANTILLY, France (Reuters) - Group of Seven finance chiefs cast a cloud over prospects for Facebook’s Libra digital coin on Wednesday, insisting tough regulatory problems would have to be worked out first.

The massive social media company’s plan to launch a digital coin has met with a chorus from regulators, central bankers and governments saying it must respect anti-money-laundering rules and ensure the security of transactions and user data.

But there are also deeper concerns that the powers of big tech companies increasingly encroach on areas belonging to governments, like issuing currency.

Japan urges G7 to think beyond existing rules in dealing with Libra
“The sovereignty of nations cannot be jeopardised,” French Finance Minister Bruno Le Maire told journalists after chairing the first day of the two-day meeting.

“The overall mood around the table was clearly one of important concerns about the recent Libra announcements, and a shared view that action is needed urgently,” he added.

German Finance Minister Olaf Scholz said Facebook’s plans do not “seem to be fully thought through”, adding that there were also data security questions.

“I am convinced that we must act quickly and that (Libra) cannot go ahead without all legal and regulatory questions being resolved,” Scholz told journalists.

France, which chairs the Group of Seven advanced economies this year, has asked European Central Bank executive board member Benoit Coeure to set up a G7 task force to look into crypto-currencies and digital coins like the Libra.

Coeure presented a preliminary report to ministers and central bankers at the meeting, in the quaint chateau town of Chantilly, north of Paris.

Central bankers say that if Facebook wants to take deposits, it needs a banking license, which would subject it to the strict regulation that goes with operating in that industry.

Some central bankers also say that allowing people to transact anonymously is a non-starter given financial sector regulations that require payments firms to hold basic information about their customers.

Bank of Japan Governor Haruhiko Kuroda said the G7 task force was likely to evolve over time into something including a broader range of regulators beyond the group, given the huge impact Libra could have on the global economy.

“If the Libra is aspiring to be used globally, countries must seek a globally coordinated response,” Kuroda said.

“This is not something that can be discussed among G7 central banks alone.”

G7 finance ministers are also concerned about how best to tax big tech companies, with France keen to use its presidency of the two-day meeting to get broad support for ensuring minimum corporate taxation.

G7 governments are concerned that decades-old international tax rules have been pushed to the limit by the emergence of companies like Facebook and Apple, which book profits in low-tax countries regardless of the source of the underlying income.

The issue has become more vexed than ever in recent days as Paris defied U.S. President Donald Trump last week by passing a tax on big digital firms’ revenues in France, despite a threat from Trump to launch a probe that could lead to trade tariffs.

Their bilateral dispute aside, France and the United States are in favor of rules ensuring minimum taxation as part of an effort among nearly 130 countries to overhaul international tax rules.

Although a G7 agreement would set the tone for the broader push, an agreement among all of the G7 ministers on a minimum rate or range of rates is likely to prove elusive as Britain and Canada have reservations, a French Finance Ministry source said.

“If we don’t agree at the G7 level on the broad principles for taxing digital companies today or tomorrow, then quite frankly it will be complicated to find among 129 countries at the OECD,” Le Maire said.

Reference: Leigh Thomas, Michael Nienaber

Thursday, 18 July 2019

Sterling recovers from lows, helped by strong retail sales

LONDON (Reuters) - The British pound rose on Thursday after stronger-than-expected retail sales numbers and as traders betting against the currency took some profits following this week’s plunge, which came amid new concerns about the threat of a no-deal Brexit.

British retail sales rebounded unexpectedly in June, rising 1% over the previous month, according to official data. A Reuters poll of economists had forecast a month-on-month retail sales contraction of -0.3%.

Compared with June 2018, sales were up by 3.8%, stronger than all forecasts.

Several economists have predicted the UK economy shrank in the second quarter but the strong retail sales numbers may raise hopes that the economy kept growing.

Sterling dropped to a 27-month low against the dollar this week after the two candidates to replace Prime Minister Theresa May appeared to push for a no-deal Brexit if they cannot renegotiate a proposed withdrawal agreement with the European Union.

“Whist GBP’s recent underperformance is mostly related to a rising political risk premium, weak economic data have also played their part (our UK economic surprise index has swung from strongly positive to strongly negative, -50 currently, over the last couple of weeks),” said Adam Cole, strategist at RBC Capital Markets.

The pound rose 0.4% to $1.2485 after the retail sales numbers, having traded around $1.2470 beforehand.

That helped the currency move further away from the 27-month low of $1.2382 hit on Wednesday.

Against the euro, sterling recovered 0.3% to 90.030 pence. It had hit a six-month low of 90.51 pence on Wednesday.

Britain is due to leave the EU on Oct. 31, and traders worry it could depart without trading arrangements with the bloc in place. That would hit the British economy, which is already struggling because of the political uncertainty around Brexit, economists say.

Reporting by Tommy Wilkes

Global stocks slide as U.S.-China trade war takes toll on earnings

LONDON (Reuters) - Global shares slipped on Thursday on growing signs that a trade dispute between the United States and China was taking a toll on corporate earnings, with nerves spreading from Wall Street through Asia to European markets.

MSCI world equity index, which tracks shares in 47 countries, fell 0.2% to their lowest in nine days, while the Euro STOXX 600 slipped 0.5% to its lowest in almost three weeks.

The earnings season, kicking off this week, brought bad signs as rail freight giant CSX Corp, cut its revenue forecast as it warned of the impact of the U.S.-China trade war, pushing down Wall Street indexes on Wednesday.

In Europe, too, earnings were top of the agenda. Tech stocks led the slide as software firm SAP, Europe’s most valuable tech stock by market cap, reported poor results, also flagging the impact of the U.S.-China trade war.

With nerves already on edge over when face-to-face talks between the United States and China will resume, U.S. President Donald Trump on Tuesday maintained pressure on Beijing with a threat to put tariffs on another $325 billion of Chinese goods.

Investors also cited a report that progress toward a U.S.-China trade deal has stalled as the Trump administration works out how to address Beijing’s demands that it ease restrictions on Huawei Technologies.

“It’s still about the U.S. and China dispute,” Christophe Barraud, chief economist and strategist at Market Securities. “The trade war is creating uncertainty, weighed on capex, and clearly on trade flows.”

“There are also problems with guidance, especially in the transportation sector. The fact is that one of the key stories of this year is global trade flows contraction,” he said.

Adding to the concerns over corporate health, Netflix shed U.S. subscribers for the first time in 8 years, sending shares falling over 10% after the close of the market.

Compounding the trade concerns were concerning signs for the economy emerging from Japan to the United States.

Japan’s exports slumped yet again, falling 6.7% in June, while manufacturers’ confidence fell to a three-year low in July on the back of the trade tensions and slowing China growth.

U.S. housebuilding fell in June for a second consecutive month, with building permits also falling, in a possible sign of more trouble ahead for the housing market.

The earnings anxiety and macro data boosted demand for safe haven assets, with yields on benchmark 10-year and 30-year U.S. Treasuries climbing overnight.

Euro zone government bond yields slipped back toward record lows on Thursday as economic indicators and corporate earnings deepened gloom on the global economy and increased bets on interest-rate cuts by major central banks.

Amid the gloomy outlook, bets for further monetary policy easing from major central banks have grown, with speculation on whether the U.S. Federal Reserve will be cut by 25 basis points or 50 basis points in July.

While markets take comfort from central banks’ willingness to support growth, said Sunil Krishnan, head of multi-asset funds at Aviva Investors, there were concerns for equity markets that have rallied on the back of stimulus expectations.

The weak start to the Q2 earnings season may spill over into the outlook for the remainder of the year, threatening equity markets’ stellar rally this year.

“We are probably in the middle of analysts downgrading Q3 company earnings expectations,” he said.

Earlier in the day, MSCI’s broadest index of Asia-Pacific shares outside Japan lost 0.3%, with Tokyo’s benchmark Nikkei tumbling 2.0%, its biggest one-day fall in four months.

In currencies, the dollar edged lower against its rivals on the softer U.S. Treasury yields, with investors focusing their attention on the Fed’s meeting next week.

Against a basket of its rivals, the dollar edged 0.1% lower to 97.195.

Sterling was a shade higher at $1.244, off its lowest since April 2017 touched on Wednesday amid growing risks of Britain leaving the European Union in a no-deal Brexit.

Major British banks, such as HSBC, are already talking of the possibility of the pound breaching post-Brexit referendum lows of $1.149, with some asking whether the pound is headed for parity against both the dollar and the euro.

Oil prices were mixed, with U.S. crude extending losses after data showed U.S. stockpiles of gasoline and other products rising sharply last week, suggesting weak demand.

Brent crude futures were up 6 cents, or 0.1%, at $63.71 a barrel by 0755 GMT. They fell 1.1% on Wednesday.

Reporting by Tom Wilson

FOREX-Dollar slips as U.S. yields decline on risk aversion

TOKYO, July 18 (Reuters) - The dollar slipped on Thursday as risk aversion in the broader markets pushed benchmark U.S. yields to a nine-day low.

The dollar index versus a basket of six major currencies was down 0.2% at 97.081.

The index had climbed to a one-week peak of 97.444 the previous day on stronger-than-expected U.S. retail sales and a slump in sterling.

But it edged lower as safe-haven Treasury yields fell in the wake of weak U.S. housing market data and concerns about the prolonged U.S.-China trade dispute.

“The dollar basically handed back earlier gains as Treasury yields pulled back and on IMF comments, and came back to where it was a few days ago,” said Takuya Kanda, general manager at Gaitame.Com Research Institute.

Various economic data have given conflicting signs regarding the state of the U.S. economy, but that does not change the bigger picture of the dollar facing downward pressure due to an expected rate cut by the Federal Reserve later this month, Kanda said.

The International Monetary Fund (IMF) said on Wednesday the greenback was overvalued by 6% to 12%, based on near-term economic fundamentals.

The Fed is widely expected to lower interest rates by 25 basis points (bps) at its July 30-31 policy meeting, with some in the market wagering on a larger 50 bps cut.

Sterling was a shade higher at $1.2438. It had stumbled to $1.2382, its lowest since April 2017 on Wednesday amid growing risks of Britain leaving the European Union in a no-deal Brexit, before selling abated.

The euro added to modest overnight gains and edged up 0.1% to $1.1238. The single currency’s gains were limited as it was restrained by expectations of easing from the European Central Bank as early as next week.

The dollar was 0.2% lower at 107.730 yen, having gone as low as 107.640, its weakest level since July 3.

The Australian dollar advanced after data on Thursday showed the country’s jobless rate remained stable and underemployment decline in June, reducing the prospect of near-term easing by the Reserve Bank of Australia.

The Aussie was 0.3% higher at $0.7031.

“The Australian dollar drew a significant part of its support from the June underemployment rate, which fell to 8.2% from 8.6%,” said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.

The underemployment rate has a higher correlation with policy rates and wages compared to the jobless rate and is likely to attract more attention going forward, Yamamoto said.

The New Zealand dollar hovered near a three-month peak of $0.6745 scaled overnight. The kiwi has gained more than 0.5% this week, supported by positive domestic factors such as strong inflation.

Reference: Shinichi Saoshiro

Japan shares suffer worst fall in 4 months on earnings fears

TOKYO, July 18 (Reuters) - Japanese shares recorded their biggest one-day fall in nearly four months on Thursday as dismal export data and weak U.S. corporate earnings raised fresh worries about fallout from the Sino-U.S. trade war.

The Nikkei share average fell 1.97% to 21,046.24 points, hitting a one-month low and marking its second biggest slide so far this year only after a 3% plunge on March 25.

The broader Topix fell 2.11% to a one-month closing low of 1,534.27.

“The earnings of global manufacturers will be soft for now. Investors are on the sidelines and waiting to buy on dips only if the Nikkei falls below 21,000,” said Takashi Hiroki, chief strategist at Monex Securities.

As the U.S. earnings season kicked off, weak results from railway transport company CSX Corp stoked concerns that the protracted trade standoff between the United States and China could hurt the profits of U.S. companies.

The outlook is seen even bleaker in Japan as companies struggle with the U.S.-China tariff war amid deteriorating global conditions that have dragged on its exports.

Japan’s June exports to China dropped more than 10% from a year earlier, its sixth fall in the past seven months, trade data showed on Thursday.

Ahead of Japanese earnings seasons that will start later this month, Canon fell 4.0% after the Nikkei business daily reported its operating profit was on track to sink 40% this year.

NOK Corp fell 6.4% after the manufacturer of sealant products slashed its earnings outlook, cutting its annual operating profit estimates by 34% on weak sales of car-related products in North America and China.

Nikkei’s slide accelerated after a few major technical support levels, including 25- and 50-day moving averages.

Some brokerages bought a large amount of Nikkei put options with strike price of 20,000 — essentially bets that the Nikkei will fall below that level — to cover their trade with clients, further weakening the mood.

As a result, the Nikkei volatility index, which hit two-year low of 13.01 the previous day, jumped to 16.44, making the biggest jump in nearly four months.

A broad range of shares came under pressure, including both cyclicals as well as defensive shares, with decliners outnumbering advancers by 96 to 2 on the main board.

Some shares with link to animation-making industry were hit after more than 10 people are feared dead in a suspected case of arson at an animation studio in Kyoto.

Cinema company Toho fell 4.5% while Toei Animation dropped 3.2%. Entertainment firm Bandai Namco lost 3.2%.

Elsewhere, Akebono Brake Industry Co Ltd rose 7.8% after the troubled car parts maker said it expects to receive investment from a corporate turnaround fund to help restructure its money-losing business. (Additional reporting by Tomo Uetake Editing by Jacqueline Wong & Kim Coghill)

Reference: Hideyuki Sano

Stocks wobble on trade, earnings anxiety; U.S. Treasury yields fall

TOKYO (Reuters) - Asian share markets faltered on Thursday as Wall Street stocks dropped on early signs that the U.S.-China trade war could hurt corporate earnings, which helped underpin solid demand for safe-haven U.S. Treasuries.

MSCI’s broadest index of Asia-Pacific shares outside Japan retreated 0.3%, while Tokyo’s benchmark Nikkei skidded 2.0%, its biggest one-day fall in four months.

Chinese shares followed suit, with the benchmark Shanghai Composite and the blue-chip CSI 300 down 0.8% and 0.7%, respectively, while Hong Kong’s Hang Seng dropped 0.6%.

South Korea’s market was off 0.4% after the Bank of Korea unexpectedly cut its policy interest rate for the first time in three years, as uncertainties from a trade dispute with Japan added to anxiety about the economy’s outlook.

European stocks are also poised for a decisively lower open, with futures for Britain’s FTSE falling 0.4%, Germany’s DAX down 1.0% and France’s CAC down 0.5%.

On Wall Street, all three major indexes fell on Wednesday as weak results from trade-related CSX Corp stoked concerns that the protracted trade standoff between the United States and China could hurt U.S. corporate earnings.

Earlier in the week, U.S. President Donald Trump kept up pressure on Beijing with a threat to put tariffs on another $325 billion of Chinese goods, amid market nervousness over when face-to-face talks will resume.

The Wall Street Journal reported that progress toward a U.S.-China trade deal has stalled while the Trump administration determines how to address Beijing’s demands that it ease restrictions on Huawei Technologies.

Netflix Inc shares tumbled in after-market trade after the world’s dominant subscription video service lost U.S. streaming customers for the first time in eight years and missed targets for new subscribers overseas, raising worries in an already nervous the market.

Treasury yields slid as concerns about the U.S.-China trade war boosted demand for safe haven debt and after data showed weakness in the U.S. housing market.

Yields on benchmark 10-year and 30-year bonds climbed more than seven basis points each, to 2.06% and 2.57%, respectively, overnight and were last quoted at 2.04% and 2.56%, in that order.

Even as mortgage rates drop, U.S. homebuilding fell for a second straight month in June and permits declined to a two-year low in a possible sign of more trouble ahead for the housing market.

In the foreign exchange market, the dollar slipped on Thursday as broader risk aversion pushed benchmark U.S. yields to a nine-day low.

The dollar index versus a basket of six major currencies was down 0.2% at 97.08. The index had climbed to a one-week peak of 97.44 the previous day on stronger-than-expected U.S. retail sales and a slump in sterling.

The euro added to modest overnight gains and edged up 0.1% to $1.124. The single currency’s gains were limited as it was restrained by expectations of easing from the European Central Bank as early as next week.

The dollar was 0.3% lower at 107.62 yen, its weakest level since July 3.

The International Monetary Fund (IMF) on Wednesday said the dollar was overvalued by 6% to 12%, based on near-term economic fundamentals.

Sterling was a shade higher at $1.244. It had stumbled to $1.238, its lowest since April 2017 on Wednesday amid growing risks of Britain leaving the European Union in a no-deal Brexit.

“Risks of a no-deal Brexit have increased to worryingly high levels. Investors should be concerned,” said Seema Shah, London-based chief strategist at Principal Global Investors.

“In the scenario where a no-deal Brexit becomes a realistic prospect, the continued decline in sterling will be just a drop in the ocean.”

Britain’s fiscal watchdog is expected to say on Thursday the country’s economy will fall into a recession next year and that its economy will be 3% smaller in the event of a “no-deal” Brexit, The Times newspaper reported.

Precious metals were in demand, with gold prices hitting their highest in two weeks on Thursday, as weaker-than-expected U.S. data reinforced expectations for an interest rate cut by the U.S. Federal Reserve later this month, dragging the dollar lower.

Spot gold gained as much as 0.2% to hit $1,429.10 per ounce, its highest level since July 3. Silver climbed as much as 1.0% to 16.12, its highest level since February, extending gains for a fourth straight session.

Oil prices steadied on Thursday after falling in the previous session when official data showed U.S. stockpiles of products like gasoline rose sharply last week, suggesting weak demand during the peak driving season.

Brent crude futures were up 0.2% to $63.80 a barrel, while U.S West Texas Intermediate (WTI) crude futures edged down 0.1% to $56.74 a barrel.

Reporting by Tomo Uetake