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Wednesday, November 13, 2019

Reuters poll: Trade truce unlikely in 2020 but U.S. recession fears recede - economists

By Shrutee Sarkar

BENGALURU (Reuters) - The U.S.-China trade war is unlikely to see a permanent truce over the coming year, and while concerns have eased over a U.S. recession, an economic rebound is also not expected any time soon, according to a Reuters poll of economists.

The Nov. 8-13 Reuters poll of over 100 economists showed a quarter-point Federal Reserve interest-rate cut would come in the third quarter next year; a poll three weeks ago had predicted a cut early next year.

That shift in expectations came after Fed Chairman Jerome Powell indicated that while the central bank was cautious about the trade conflict and slowing growth, it would now pause after cutting rates three times this year to 1.50-1.75%.

While most major central banks are concerned about the ongoing trade dispute, stocks on Wall Street have touched record highs over the past few months on hopes for a resolution between Washington and Beijing.

But economists do not share the same view. While the median probability of a recession for the coming year fell to 25% from 35% last month, the economic growth outlook remained modest.

Over three-quarters of 53 economists who answered an additional question said a permanent truce in the U.S.-China trade war was unlikely over the coming year.

"The global economic backdrop is going to remain tough, the U.S. dollar is going to remain relatively firm and we are less positive on the trade story than perhaps the market is currently pricing. The talk of (tariff) rollbacks and stuff like that – we are not as certain that will actually come through," said James Knightley, chief international economist at ING.

"So, we think there is still scope for a weaker growth environment – with inflation being pretty benign - to give the Fed the opportunity to come in with a little bit more stimulus."

President Donald Trump said on Friday he had not agreed to rollbacks of U.S. tariffs sought by China. Officials from both countries on Thursday said China and the United States had agreed to roll back tariffs on each others’ goods in a “phase one” trade deal.

The U.S. economy is forecast to have expanded at an annualized pace of 1.9% in the July-Sept period, slightly down from 2.0% in the second quarter. Growth is expected to hover around that rate in each quarter through to the second half of 2021, according to economists.

Over 80% of 52 respondents to an additional question said the Fed had done enough to delay the next recession but that already-modest growth forecasts were largely left unchanged.

"I think in terms of the risks, they are probably still tilted toward the Fed maybe cutting rates once more at some point in the coming months if growth slows further, certainly if there is some renewed breakdown in trade talks," said Andrew Hunter, senior U.S. economist at Capital Economics.

"But barring that, it does look like they have done enough to avert a recession. In our baseline forecast, there is growth slowing a little bit further over the next couple of quarters but starting to recover next year."

Economists were almost evenly split about whether there would be any interest rate cuts.

While the median showed the Fed would next trim rates in the third quarter of 2020, taking the fed funds rate to 1.25%-1.50%, only a small majority of economists forecast at least one cut.

A strong minority - over 46% of 93 economists - expected rates to be unchanged until at least 2021, compared to 31% of 84 economists in October, in line with interest rate futures.

Asked about the Fed's next interest rate move, 55 of 75 economists said it would be a cut.

The Fed's preferred measure of inflation - the change in the core personal consumption expenditures price index - is expected to be 2.0% in the first quarter and then to remain at 1.9% at least until the second quarter of 2021.

"Limited inflation pressure will allow the Federal Reserve to err on the side of accommodation. The Federal Open Market Committee will probably remain on the sidelines for the next several months," said Michael Moran, chief economist at Daiwa Capital Markets.

"However, if momentum begins to fade as we expect, the Fed will probably make an effort to sustain the expansion."

Original Article

Uber launches new safety features in UK as it fights for new license

LONDON (Reuters) - Uber (NYSE:UBER) launched a set of new safety features in Britain on Thursday as it battles to retain its taxi operating license in the face of concerns about passenger safety.

The measures include a discrimination button enabling drivers and riders to report abuse, enhanced safety training for drivers and a direct connection to the emergency services.

In September, Uber received only a two-month operating license in London, its most important European market, failing to secure a maximum five-year term in a battle with the regulator Transport for London (TfL) which has previously stripped the app of its right to take rides.

The two-month license came with "new conditions to ensure passenger safety" and TfL said at the time it wanted more details from the company.

In 2017, TfL rejected the Silicon Valley company's license renewal request due to failings it said it found in its approach to reporting serious criminal offences and driver background checks. Uber was then granted a probationary 15-month license in 2018.

Drivers of London's traditional black taxis have lobbied hard against a license renewal, citing safety issues, working standards and the undercutting of their business model.

Uber says its roughly 45,000 drivers in the city enjoy the flexibility of their work and that it has already taken several steps to improve safety for its passengers.

Original Article

SoftBank's Z Holdings says in merger talks with line

TOKYO (Reuters) - Japanese Internet firm Z Holdings (T:4689), the SoftBank-owned operator of Yahoo (NASDAQ:AABA) Japan, said on Thursday it was in talks to merge with messaging app operator Line Corp (T:3938).

Sources told Reuters the previous day a deal could see SoftBank Corp (T:9434), which controls Z Holdings, and Line's parent Naver Corp (KS:035420) form a 50/50 venture. The venture would control Z Holdings, which would in turn operate Line and Yahoo, the sources said.

Z Holdings said in a statement to the Tokyo Stock Exchange that discussions were underway but nothing had been decided.

Original Article

China launches new crackdown on chemical safety

© Reuters.  China launches new crackdown on chemical safety© Reuters. China launches new crackdown on chemical safety

SHANGHAI (Reuters) - China's cabinet will begin a nationwide safety crackdown on its massive chemical industry after an official investigation into a deadly plant blast that killed 78 people and injured dozens more in March.

The explosion, at the Tianjiayi chemical factory in Yancheng in eastern coastal Jiangsu province, has already resulted in the closure of dozens of small plants and China expects to relocate more than 80% of hazardous chemical production by the end of 2020.

A meeting of the State Council chaired by Premier Li Keqiang on Wednesday said an inquiry into the blast revealed local authorities had failed to implement safety rules or crack down on violations.

A summary of the meeting on China's official government website ( showed Beijing will launch a new round of inspections into hazardous chemical producers throughout the country, and that local governments must eliminate all hazards around production, storage, transportation and waste disposal.

It will also work on new legislation to help enforce safety rules and punish offenders, and curb "blind and disorderly" development in the industry.

The March blast sent shockwaves throughout the chemical industry, with industry officials saying costs have risen and supply chains have been disrupted as a result of stricter inspections and plant closures.

As well as tighter zoning regulations that prevent chemical plants from being built near residential areas, China is now implementing new rules on the transportation and disposal of hazardous materials.

Original Article

Key antitrust lawmaker frustrated with Google's Fitbit deal

By Diane Bartz and Nandita Bose

WASHINGTON (Reuters) - Lawmakers pressed top U.S. antitrust enforcers on their probes of tech giants Alphabet's Google (O:GOOGL), Facebook (O:FB), Amazon (O:AMZN) and Apple (O:AAPL) on Wednesday, with the chair of a House subcommittee expressing frustration over the companies' continued acquisitions.

In a hearing of the House Judiciary Committee's antitrust subcommittee, Makan Delrahim, the head of the Justice Department's antitrust division, said his investigative staff was focused on understanding how personalized advertising transactions work. Facebook and Google, in particular, depend on advertising for their revenue.

"By understanding these competitive dynamics, we can understand how the market leaders have monopoly power, how they exercise that monopoly power and whether the source of that power is for merit-based competition or the source of that power is exclusionary," Delrahim said.

The Justice Department and the committee are looking into all four companies while the Federal Trade Commission is probing Facebook and Amazon. Groups of dozens of state attorneys general are also investigating Google and Facebook.

Delrahim said the department was working with the states on their probes. "We continue to coordinate with the state AGs on both of the matters that have been made public," said Delrahim.

Representative David Cicilline, chair of the subcommittee, noted that Google had continued with acquisitions despite the slew of antitrust investigations, pointing in particular to planned purchases of Looker and Fitbit. The acquisition of Looker, a privately held big-data analytics company, was approved last week.

"The hubris of the executive team to pursue an acquisition of this size," he said, referring to its $2.1 billion bid for Fitbit, "while under federal and state antitrust investigations is astonishing."

Google's interest in Fitbit Inc, a U.S. wearable device maker, comes as it eyes a slice of the crowded market for fitness trackers and smartwatches.

Watchdog groups like Public Citizen and the Center for Digital Democracy, among others, urged the FTC Wednesday to block the deal.

"Google knows more about us than any other company, and it should not be allowed to add yet another way to track our every move," they said in a letter.

Republicans on the committee, by and large, urged caution in probing America's biggest, most successful companies, with Representative Doug Collins warning against punishing success.

"Companies that offer new innovations, better solutions and more consumer benefits at lower prices often become big — to the benefit of society. Proposals to break up big companies because of their size alone risk throwing the baby out with the bath water," he said.

Original Article

BCE Invokes Encana Move in Asking Trudeau to Overrule CRTC

© Reuters.  BCE Invokes Encana Move in Asking Trudeau to Overrule CRTC© Reuters. BCE Invokes Encana Move in Asking Trudeau to Overrule CRTC

(Bloomberg) -- Canada’s largest telecommunications companies made a formal request to Prime Minister Justin Trudeau’s government to reverse a regulator’s decision that slashed rates the company can charge to internet service providers.

The petitions from BCE Inc., Rogers Communications Inc. and industry peers follows a decision by the Canadian Radio-television and Telecommunications Commission in August to reduce wholesale broadband prices that telcos charge to third-party service providers in a bid to boost competition, with the cuts applying retroactively to 2016.

“Restoring the pre-existing rates and maintaining the status quo will allow resellers to continue to grow and at the same time preserve incentives for network investment at a critical juncture in the investment cycle,” BCE said Wednesday in the petition to Trudeau’s cabinet.

Montreal-based BCE argues the decision has brought wholesale broadband rates to below the cost of service, undermining incentives to invest and offer new products at a time when the nation is already struggling to retain business spending. BCE even cited the decision by Encana Corp. -- one of the country’s marquee energy companies -- to move its headquarters to the U.S.

“It is not the first time that we raise investment concerns with government. But, the dramatic impact of these latest rate reductions raises our concern to a new level, especially when the investment situation is already difficult in Canada,” BCE said.

Brad Shaw, chief executive officer at Calgary-based Shaw Communications Inc., said in a statement the CRTC’s decision will “seriously affect” the company’s ability to expand into rural and remote communities and meet the demand of millions of families, “particularly as we enter the 5G era.”

(Updates with Shaw comment in final paragraph.)

Original Article

Bond Traders Clear the Tourists From the Room

(Bloomberg Opinion) -- The bond market isn’t ready to concede that the economy is on a sustained upturn that will allow it to skirt a severe slowdown or even a recession. U.S. Treasuries followed most of the rest of the global government debt market higher Wednesday, providing a welcome respite from a sell-off that’s looking more like an adjustment of overextended positions than a referendum on faster growth.

Sure, some of the gains in the bond market may be related to doubts about the U.S. and China actually agreeing to the first phase of a trade deal after some downbeat comments by President Donald Trump on Tuesday and subsequent reports of a “snag” on Wednesday. But what hasn’t been discussed as much is evidence that the recent slump in bonds had much to do with the reversal of positions by general investors who bought government debt in August, September and early October as recession speculation peaked. That was borne out in the latest monthly survey of global fund managers by Bank of America (NYSE:BAC) released on Tuesday. It showed being long Treasuries is no longer the world’s “most crowded trade,” with 21% of respondents saying so, down from a massive 41% in October. The new “most crowded trade” is long U.S. technology and growth stocks at 39%. And with yields on benchmark 10-year Treasuries having risen from 1.43% in early September to 1.87% on Wednesday, there’s reason to believe that bonds are more fairly valued. In fact, the latest yield is higher than the 1.71% that economists expect it to be at the end of the year and the 1.78% they estimate at the end of the first quarter 2020, according to data compiled by Bloomberg.

Although the data show that the economy both in the U.S and globally may not be getting any worse, that’s far different from showing it’s getting much better and causing central banks to turn hawkish again. “We see the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook,” Federal Reserve Chair Jerome Powell told the Congressional Joint Economic Committee on Wednesday in Washington. “However, noteworthy risks to this outlook remain.”

STOCKS HIT A TRADE SNAGThanks in part to Powell’s dovish comments, everything was going swimmingly in the stock market until the Wall Street Journal reported that trade talks between the U.S. and China had hit a snag, briefly causing equities to erase their gains. Citing people familiar with the matter, the paper said China is leery of putting a numerical commitment on agriculture purchases in the text of a potential agreement. The development seems to explain why Trump only a day earlier sounded unusually cautious about a trade agreement, saying only that it “could happen soon” and adding that if it didn’t, then he would just increase tariffs on Chinese goods. This is no small matter for the stock market, which has rallied to new highs largely on the notion that a “phase one” deal would be reached, eliminating a significant drag on the global economy. “A couple of weeks ago, it looked like that phase one deal looked all but certain. I think the market started to price in a really positive outcome on the trade side,” Jeff Mills, chief investment officer at Bryn Mawr Trust, told Bloomberg News. “Although I do think that progress is moving in a positive direction, I think it would be foolish for us to assume that we’re going to move completely in a positive direction in trade without any type of intermittent setbacks.” Although equities recovered in late trading, buying stocks in the hopes of a trade deal is proving to be a perilous strategy.

DEFICITS (SOMETIMES) DON’T MATTERThe Bloomberg Dollar Spot Index rose for the seventh time in eight days on Wednesday to its highest in a month even though the U.S. government said its budget deficit widened in October, the first month of the fiscal year, as government spending increased and receipts declined. The shortfall grew about $34 billion, or almost 34%, from the same month last year, to $134.5 billion. This comes after the budget deficit for fiscal 2019 clocked in at just shy of $1 trillion at $984.4 billion. One benefit to having the world’s primary reserve currency is that such deficits don’t exactly matter as much as they would in a place such as Greece. Still, an out-of-control deficit and borrowing could reduce demand for the greenback and U.S. debt at the margins. The upshot is it looks as if the U.S. may not borrow as much as previously estimated to finance the deficit, thanks to recent moves by the Fed to buy Treasury bills to ensure reserves remain abundant. As a result, the strategists at JPMorgan Chase (NYSE:JPM) wrote in a report this week that net debt issuance to the public by the U.S. Treasury will be just $720 billion, down from a projected $1.27 trillion in fiscal 2019. That should provide some support to the dollar and, by extension, the U.S. government.

ITALY GETS BYPASSEDOne place where the bond rally failed to make an appearance was Italy. Demand slumped to the lowest in 14 months at an auction Wednesday of seven-year notes, even with yields near the highest in three months. That suggests investors prefer countries with slimmer returns but lower credit risk and comes after a recent rise in yields in markets such as Germany and France, weakening Italy’s relative appeal, according to Bloomberg News’s James Hirai. Investors have been cooling toward Italy after political uncertainty and a recent revival in the fortunes of euro-skeptic politician Matteo Salvini. “Peripheral spreads become more vulnerable the higher core yields go as investors switch demand to safer core, semi-core bonds,” Peter Chatwell, head of European rates strategy at Mizuho International, told Bloomberg News. “Higher yields, without a broad based and structural rise in nominal growth, will pose a sustainability risk to Italy’s debt.” With $2.26 trillion of government debt, Italy has more bonds outstanding than all but the U.S., China and Japan, data compiled by Bloomberg show. Italy also has one of the highest debt-to-gross domestic product ratios at 131.5%, compared with 82.3% in the U.S. So when Italy has a poor debt auction, it’s worth paying attention.

HOT COCOAChocolate lovers may soon have to dig a little deeper in their pockets to afford their favorite indulgence. Cocoa prices have staged an impressive rally in recent months, approaching an almost 18-month high in New York on Wednesday. The gains come amid speculation that near-term supplies are getting tighter, according to Bloomberg News’s Agnieszka de Sousa. The clearest sign that traders expect tighter supplies can be seen in the prices of so-called nearby contracts, which have moved into a premium compared with later deliveries in a market structure known as backwardation and a sign of tightening supplies. “Traders are blaming the upsurge on concerns about a shortage in the short-term availability of cocoa beans,” Carsten Fritsch, an analyst at Commerzbank AG (DE:CBKG), said in a note. Still, it’s not clear why short-term supplies should be so tight as shipments in top grower Ivory Coast are still in full swing and higher than a year earlier, he said. There are also some concerns that a new $400-a-ton premium for supplies from West Africa, the world’s top producing region, may affect the way cocoa is traded on the exchanges. The new pricing system could mean that fewer supplies end up getting delivered to warehouses monitored by ICE (NYSE:ICE) Futures U.S., driving a rally in the market, according to NickJen Capital Management.

TEA LEAVESThere is a good chance that talk of a global recession could heat up again as soon as Thursday. That’s when Germany — Europe’s largest economy — reports on GDP for the third quarter. The median estimate of economists surveyed by Bloomberg is for a contraction of 0.1%, which would mark a technical recession because the economy shrank by the same amount in the second quarter. But as Bloomberg Economics points out, whether the German economy records the shallowest of recessions or escapes one by the narrowest of margins isn’t important; what’s important is how long the dip will persist.

DON’T MISS FOMO Doesn’t Cut It as a Buy Signal for Stocks: John Authers The World Is Being Inundated With Financial Capital: Noah Smith Jamie Dimon Is Wrong About Negative Rates: Ferdinando Giugliano The IEA’s New Energy Outlook Comforts No One: Liam Denning Trump’s Economy Complicates Democrats’ Message: Karl W. Smith

Original Article

A Jump in Bond Yields Gives the Bank of Japan Some Relief

© Reuters.  A Jump in Bond Yields Gives the Bank of Japan Some Relief© Reuters. A Jump in Bond Yields Gives the Bank of Japan Some Relief

(Bloomberg) -- The surge in Japanese government bond yields is helping to correct some distortions in the market and provides a measure of relief to Bank of Japan policy makers.

The 10-year yield is eyeing a break out of negative territory for the first time since March, approaching the key zero percent level around which the BOJ has built its yield curve control policy. The benchmark yield rose to as high as minus 0.03% Tuesday, after falling to near a record low of minus 0.295% early in September. It traded at minus 0.05% Wednesday

The move has eased pressure on the central bank to taper bond purchases to prevent a downward spiral in yields. After a flurry of cuts in August and September, the BOJ has kept purchases in the key 5-10 year zone unchanged in its regular operations, including on Monday.

“It won’t boost purchases, and because the yield is near zero, it won’t taper buying,” said Takenobu Nakashima, senior rates strategist at Nomura Securities Co. in Tokyo. “Yields around current levels will not prompt the BOJ to do much at its operations.”

Meanwhile, the two-year versus five-year yield curve has come out of inversion for the first time since April. The move has made the five-year note look less expensive, raising hopes of solid demand in an auction of the maturity on Thursday, according to Kasutoshi Inadome, senior fixed-income strategist at Mitsubishi UFJ Morgan Stanley (NYSE:MS) Securities in Tokyo.

Further out Japan’s curve, longer-dated yields are also rising. Thirty-year yields have risen about 9 basis points this month with twenty-year equivalents up over 8 basis points, helping push the yield curve relative to benchmark JGBs out of the flattening trend it has been in for much of the year.

“The yield curve may not flatten aggressively as before because there are some signs of the global economy stabilizing,” said Naoya Oshikubo, a senior economist at Sumitomo Mitsui Trust Asset Management Co. “An excessive curve steepening may see some unwinding but it won’t enter a serious flattening trend unless it becomes evident that the U.S. economy has slipped into recession.”

Original Article