Daily Archive: September 26, 2017

Sep
26

Is Germany Still a Haven for Israelis? After Election, Some Wonder

Some Jews read the worst into gains made by the far-right Alternative for Germany party. Others said Germany was still more progressive than Israel.

Sep
26

Global economy at risk a decade on from financial crisis, says WEF

UK slips one place to eighth in competitiveness rankings as Switzerland tops World Economic Forum league table

The 10th anniversary of the worst downturn since the Great Depression finds the global economy at risk of a fresh crisis and ill-prepared for the disruption likely from the robot age, the World Economic Forum has warned.

The body that organises the annual gathering of the global elite in Davos each January used its annual league table of competitiveness to stress that the failure to push through growth and productivity-friendly policies since the crash of 2007-08 had jeopardised chances of a sustained recovery.

Related: The eurozone strikes back – why Europe is booming again

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Sep
26

The AA should be a reliable runner – but it’s dented by £2.7bn of debt

The motoring organisation is a market leader with solid cash flows, but private equity owners have left it struggling

Here comes Simon Breakwell, hauled from the crew of non-executive directors, to perform running repairs on the AA as its new chief executive. His first tweak? A delay to an IT upgrade and a warning that an extra £35m must be spent. The shares hit another all-time low.

On the plus side, boring talk about computers makes a change from recent excitement, such as last month’s removal of executive chairman Bob Mackenzie for gross misconduct after an altercation with a colleague in the bar of a Surrey hotel. We’ll leave the two sides’ lawyers to chew over the details of the incident and ask a different question. How is that the AA, which ought to be the model of a dull and reliable investment, has performed so dreadfully for shareholders?

Related: Business Today: sign up for a morning shot of financial news

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Sep
26

The PFI contracts that keep costing the taxpayer | Letters

Readers respond to shadow chancellor John McDonnell’s pledge to bring billions of pounds’ worth of PFI projects and their staff back under government control

In your editorial (26 September) on John McDonnell’s proposal that PFI contracts be bought back by a future Labour government you suggest that any such action might be constrained by the need to persuade the financial markets to continue to lend the government money. This was an error on your part: this constraint does not exist.

Firstly that is because no government has to borrow. Quantitative easing proved that. In the UK the government (via the Bank of England) has done £435bn of QE, with the result that the government owns nearly a quarter of its own debt now, effectively cancelling it and all the interest payments due on it in the process. What this means is that another £58bn of QE could be used to cover capital costs of PFI without any difficulty. The remaining cost of buying out the service element may be little more and since QE debt carries no interest cost, there may be precisely no cost at all to buying these PFI contracts back into government control as a result. This was precisely the basis of People’s QE, which I created in 2010 and which was one of the platforms on which Jeremy Corbyn was elected Labour leader two years ago. In that case the idea that we are beholden to the bond market “confidence fairy” (as Paul Krugman so aptly named it) when proposing such a move is just nonsense. The fact is that if bond markets are truculent any government can just work around them.

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Sep
26

Pound hits 10-week high against the euro, but slips against dollar on Yellen rate hints – as it happened

Sterling has risen to €1.14 for the first time since early July

Yellen hints at further US rate risesSterling rises against weak euroGerman election result hits single currencyCatalan election worries hit euro tooBombardier workers fear job losses over Boeing caseShrinking Jaffa Cake row

Earlier:

Brent crude hits $59 per barrel, US crude at $52
Kurdish independence vote angers Turkey

6.14pm BST

And here is the sign-off in Yellen’s speech:

To conclude, standard empirical analyses support the FOMC’s outlook that, with gradual adjustments in monetary policy, inflation will stabilize at around the FOMC’s 2 percent objective over the next few years, accompanied by some further strengthening in labor market conditions. But the outlook is uncertain, reflecting, among other things, the inherent imprecision in our estimates of labor utilization, inflation expectations, and other factors. As a result, we will need to carefully monitor the incoming data and, as warranted, adjust our assessments of the outlook and the appropriate stance of monetary policy. But in making these adjustments, our longer-run objectives will remain unchanged–to promote maximum employment and 2 percent inflation.

5.56pm BST

Here are Yellen’s quotes on the pace of interest rate changes:

How should policy be formulated in the face of such significant uncertainties? In my view, it strengthens the case for a gradual pace of adjustments. Moving too quickly risks overadjusting policy to head off projected developments that may not come to pass. A gradual approach is particularly appropriate in light of subdued inflation and a low neutral real interest rate, which imply that the FOMC will have only limited scope to cut the federal funds rate should the economy be hit with an adverse shock.

But we should also be wary of moving too gradually. Job gains continue to run well ahead of the longer-run pace we estimate would be sufficient, on average, to provide jobs for new entrants to the labor force. Thus, without further modest increases in the federal funds rate over time, there is a risk that the labor market could eventually become overheated, potentially creating an inflationary problem down the road that might be difficult to overcome without triggering a recession. Persistently easy monetary policy might also eventually lead to increased leverage and other developments, with adverse implications for financial stability. For these reasons, and given that monetary policy affects economic activity and inflation with a substantial lag, it would be imprudent to keep monetary policy on hold until inflation is back to 2 percent.

5.53pm BST

After last week’s Fed meeting, Yellen admitted the central bank did not really understand why inflation had not returned to target. In her Ohio speech, she says:

Key among current uncertainties are the forces driving inflation, which has remained low in recent years despite substantial improvement in labor market conditions. …This low inflation likely reflects factors whose influence should fade over time. But .. many uncertainties attend this assessment, and downward pressures on inflation could prove to be unexpectedly persistent.

My colleagues and I may have misjudged the strength of the labor market, the degree to which longer-run inflation expectations are consistent with our inflation objective, or even the fundamental forces driving inflation. In interpreting incoming data, we will need to stay alert to these possibilities and, in light of incoming information, adjust our views about inflation, the overall economy, and the stance of monetary policy best suited to promoting maximum employment and price stability.

5.50pm BST

Yellen’s comments have pushed the US dollar index to its highest level since August 31, as investors bet another rise is coming.

5.46pm BST

Yellen’s speech can be seen here.

5.44pm BST

US Federal Reserve chair Janet Yellen has hinted at further rate rises, prompting renewed suggestions a December move is on the cards.

Last week’s Fed meeting seemed to indicate as much, and in a speech in Ohio Yellen said it would be imprudent to leave rates on hold until inflation reached 2%. But she added that the current uncertainties strengthened the case for gradual rate rises, although the Fed had to be careful not to move too gradually.

YELLEN : says fed should be wary of moving too gradually

Hawkish tone from Janet Yellen right now points to a December hike, according to ING’s James Knightley.#FED

5.08pm BST

The risk of a stock market fall seems to be growing, reckons Fawad Razaqzada, market analyst at Forex.com:

After Monday’s sell-off, Wall Street opened sharply higher as downbeat tech names found support on “bargain” hunting and amid short-side profit-taking. However, the gains appeared to be short-lived as at the time of this writing, the major indices were coming off their best levels again. I still think a major correction could be on the cards soon, possibly in the coming days.

With US stock markets holding near their all-time highs and volatility being suppressed to record low levels, I just can’t help but feel investors are becoming unjustifiably complacent. Valuations have already become overstretched and at some point even the most bullish of market participants will have to accept that. A growing number of analysts agree that the bullish run cannot continue rising at this pace for much longer, at least without a sizeable correction of some sort.

5.05pm BST

Investors remained cautious, in the wake of the continuing tensions between the US and North Korea and the outcome of the German election. So European markets ended the day little moved, while in the US, Wall Street lost some of its early gains but so far has remained in positive territory.

The dollar recovered but the euro remained weak, while oil slipped back from its 26 month highs as profit takers moved in. The final scores showed:

3.50pm BST

The pound remains ahead against the euro but lower against the dollar. Connor Campbell, financial analyst at Spreadex, said:

The euro continued to hog the limelight this Tuesday, as investors chew over the various German, French and Spanish issues facing the Eurozone.

Down half a percent against the dollar, the euro is now sitting at a fresh month low of around $1.178. Against sterling it is doing a tiny bit better; though the euro’s still at an effective 2 month low, it has halved its losses to 0.2%, forcing the pound back below €1.14.

3.33pm BST

Oil prices have fallen from their highs after profit takers moved in.

Brent crude had risen to more than $59 a barrel, its highest level since July 2015, on a combination of growing demand, Opec production cuts and Turkey’s threat to shut the pipeline that runs from Northern Iraq through Turkey to the port of Ceyhan.

3.07pm BST

American consumers were less confident in September than the previous month, partly due to the impact of the recent hurricanes.

The Conference Board’s consumer confidence index came in at 119.8 this month, below the expected level of 120. It was also below August’s figure of 120.4, itself revised down from 122.9. Lynn Franco, director of economic indicators at the board, said:

Consumer confidence decreased slightly in September after a marginal improvement in August. Confidence in Texas and Florida, however, decreased considerably, as these two states were the most severely impacted by Hurricanes Harvey and Irma. Despite the slight downtick in confidence, consumers’ assessment of current conditions remains quite favorable and their expectations for the short-term suggest the economy will continue expanding at its current pace.

2.47pm BST

US markets have moved ahead at the start of trading, as technology stocks recovered from Monday’s falls.

But investors remained nervous amid the continuing tensions between North Korea and the US. So the Dow Jones Industrial Average is up 50 points or 0.23% while the S&P 500 opened 0.16% higher and the Nasdaq Composite 0.37%.

2.35pm BST

Back with oil, and the latest surge may not continued but the market may now be better balanced, says Andrew Kenningham at Capital Economics:

The latest rise in oil prices reflects concerns about Kurdish supply and hopes for another extension of OPEC’s output cuts, neither of which may have a lasting influence on prices. But the oil market has become better balanced over the past year, suggesting that prices should remain fairly stable…

There are several reasons for the recent rise in prices. Most significantly, the underlying demand and supply for oil have been coming into balance over the past year or so. There has been a steady increase in demand as global growth has picked up. And the increase in supply has been constrained by the OPEC-led production cuts, for which compliance has continued to be surprisingly good.

2.31pm BST

Over in the US, the boss of credit reporting agency Equifax is leaving after a data breach which exposed personal data of 143m Americans.

Richard Smith is stepping down as chief executive after 12 years in the top job. The company’s management had come under fire for lax security and its response to the hacking, which took place in May.

1.59pm BST

Over in Greece, bank shares have suffered an alarming plunge, reports Helena Smith in Athens.

Shares have been sliding since the IMF announced that it wanted to conduct a bank asset review as part of a third bailout compliance review with Greece.

1.46pm BST

The spectre of shrinkflation is stalking through the UK economy again today – and this time Jaffa Cakes are the victims.

Shocking news. Why would you ever need LESS Jaffa cakes?? https://t.co/04OqV03Shf

“There is no change in the size, shape or weight of individual cakes in the McVitie’s Jaffa Cake range.”

Related: How to make the perfect jaffa cakes

12.57pm BST

The Unite union is urging the UK government to raise its efforts to protect jobs at Bombardier’s Belfast factory.

Assistant general secretary Tony Burke says Bombardier workers are “holding their breath” ahead of today’s ruling on the trade dispute with Boeing.

“The prime minister and the government need to make it clear to Trump they will not stand back and watch our members jobs and our communities threatened like this.

“Mrs May needs to stand up for our members in the aerospace industry and for decent jobs and for manufacturing in the U.K.”

Related: US authorities to deliver verdict on Bombardier-Boeing trade dispute

12.37pm BST

Northern Ireland Secretary James Brokenshire is currently meeting the Unite union in Belfast to hear their fears over a legal ruling in the United States that could put thousands of jobs in peril at the Bombardier aerospace factory in the east of the city.

12.22pm BST

The Guardian’s latest Brexit dashboard has just been launched, showing how the UK economy is faring since last June’s EU referendum.

This month, the dashboard shows that the pound has recovered to its highest levels since the vote, but that hasn’t stopped inflation hitting four-year highs.

Related: How has the Brexit vote affected the UK economy? September verdict

Bank warned not to raise interest rates amid squeeze on households https://t.co/Xd1LdhInkB

12.12pm BST

The euro has fallen sharply this week against the Swiss franc, as well as the US dollar and the pound.

Piotr Bujak, chief economist at PKO Bank Polski, has tweeted the details:

Outcome of German elections (deeper European integration in doubt) and risk-off related to NKorea drive down #EURUSD and #EURCHF. pic.twitter.com/ptEzEXm2z4

11.28am BST

The euro is also suffering from jitters ahead of Catalan’s independence referendum.

Related: Spain’s attorney general refuses to rule out arrest of Catalan president

The impending Catalonian referendum is certainly a fear for many within the EU, with the result providing the potential for ongoing conflict in the region. Referendums are clearly a major market driver at the moment, with the Iraqi Kurdistan vote being a potential disruption to the region’s oil supply.

As President Erdogan threatens to cut off the Kurdistan oil pipelines, it comes as no surprise that we have seen another leg higher for Brent, which hit a two-year high yesterday.

11.00am BST

The pound has hit a 10-week high against the euro, as worries over the German election continue to drag the single currency down.

Sterling has risen by 0.3% this morning to €1.14 for the first time since 14 July.

Complicated German coalition talks have put a cap on #euro gains. The single currency is 0.28% weaker against the #dollar.

We will have protracted coalition talks as the socialist SPD party have indicated that they wish to lead the opposition and so the most likely grouping is centre right CDU/CSU, pro-business FDP and left-leaning Grüne (Green) party. This is likely to bring minor policy shifts at home, and more importantly, slow the momentum towards greater European integration which was building following Emmanuel Macron’s election as president of France.

This will disappoint those that wanted European rebalancing led by more expansionary German fiscal policy and those that hope for an expansion of European structures to cope with the next crisis. For equity markets, we can probably look for more of the same, modest but adequate growth across the region and political pragmatism having little impact on earnings and valuations.

10.31am BST

Just in: Britons took a break from hammering their credit cards last month, and dipped into their savings instead.

That’s according to new industry data from UK Finance, which suggests households are being squeezed hard by inflation and low wage growth.

The trade body suggested consumers are saving a bit less each month, as opposed to borrowing more, amid a modest decline in the growth of credit card and personal loans. “It seems households are saving a bit less each month, rather than borrowing more, as growth in personal deposits has slowed recently, alongside a slowdown in growth of consumer credit borrowing,” it said.

Annual growth in credit card borrowing was 5% in August, compared to 5.3% in the previous month, while the use of personal loans and overdrafts fell by 1.6% on an annual basis, from a contraction of 1% in the year to July.

“Housing market activity is in Goldilocks territory, growing only modestly since the start of the year, though the mix of activity has shifted towards first-time buyers, away from buy-to-let and cash.

“Housing market activity is in Goldilocks territory,” says UK Finance. What does that mean? Hot porridge? Lumpy bed?

10.20am BST

We’ve not reached $60 per oil quite yet. Instead, Brent crude price are dipping a little….

Price of #crude #oil#Brent – $58.56 (-0.46/ -0.78%)#WTI – $51.95 (-0.27/ -0.52%)
26 Sep 09:00 UTC (GMT) pic.twitter.com/Eb0XFN79ZP

10.06am BST

European stock markets are subdued this morning, after the US and North Korea escalated their war of words last night.

Britain’s FTSE 100 is down around 0.2%, despite a rally among oil producers.

This has perked up safe haven demand for Gold, bonds, the Yen and Swiss Franc, although relative calm among risk assets suggests many expect the move to again be short-lived.

However, the rally in Oil prices is helping buoy sentiment thanks to a Kurdish referendum that could threaten Iraqi exports, extending a summer Oil rebound.

9.52am BST

Energy trading group Trafigura believes the worst is over for the oil market.

Ben Luckock, its co-head of Group Market Risk, told a conference this morning that the era of “lower for longer” oil prices would soon be over.

Oil trader Trafigura heralds end of “lower for longer” crude era https://t.co/q9KVHNoRQY via @danmurtaugh pic.twitter.com/Cft5eoB71o

9.19am BST

Yesterday’s Kurdish independence referendum took place without the support of the Iraq’s government in Baghdad.

But that didn’t prevent widespread celebrations on the streets of Erbil, capital city of Kurdistan region in Iraq, last night as the polls closed.

“After this, let’s see through which channels the northern Iraqi regional government will send its oil, or where it will sell it.

We have the tap. The moment we close the tap, then it’s done.”

#Oil jumps after President Erdogan indicates shutting down Ceyhan-Kirkuk pipeline a possibility. https://t.co/QJVsPQYZAL pic.twitter.com/AVKxhSpgUQ

8.36am BST

A former Saudi energy ministry official has predicted that the oil price will soon hit $60 per barrel.

Ibrahim al-Muhanna told an audience in Washington last night that Opec’s agreement to restrict supplies will keep prices rising.

“With the current arrangement and commitment of major producers, and their willingness to adjust and extend the agreement, I believe as commercial oil stocks continue to contract, oil prices will gradually increase.

We even might hit $60 per barrel before the end of this year or the beginning of next year.”

8.25am BST

Signs that Opec members are enforcing their recent deal to cut production have also helped to drive the oil price up.

Fawad Razaqzada, market analyst at Forex.com, explains:

Oil prices have been going higher in recent weeks due first and foremost to evidence that OPEC and Russia’s efforts to reduce the global supply glut was showing positive results and that the group was somewhat surprisingly sticking to their agreement.

Indeed, according to the OPEC Secretary-General Mohammad Barkindo, the cartel and its partners had implemented more than 100% of their agreed cuts in August. Talks that the production cuts could be extended has been providing further confidence to oil investors that the rally could be sustained.

8.09am BST

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Motorists face the prospect of higher prices at the pump after the price of oil hit its highest level in over two years.

The standout trend in markets right now is oil, moving higher pretty steadily….

All of this makes OPEC’s life a little bit easier, but it’s also significant at a wider level.

German election result contributes to euro’s biggest loss of the year yesterday, -0.9% to $1.1850. pic.twitter.com/ny2StPoM7N

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