Monday, 31 October 2016

U.S. Consumer Spending Rose 0.5% in September

In World Economy News 31/10/2016

Consumer spending rose in September, a sign of resilience among households amid middling economic growth and indications of flagging confidence in the seven-year expansion.
Personal consumption, which measures how much Americans spent on everything from airfare to autos, rose 0.5% in September from a month earlier, the Commerce Department said Monday. Incomes gained 0.3%.
Economists surveyed by The Wall Street Journal had expected personal spending and income both to increase 0.4% in September.
Consumer spending accounts for about two-thirds of total output in the U.S. and household outlays have been the main driver of economic growth throughout most of the expansion. But Americans had appeared more cautious in recent months amid declining confidence in the economy.
In the third quarter of the year, personal-consumption expenditures rose at a 2.1% pace, down from 4.3% during the prior period, according to separate data released last week. The University of Michigan’s consumer sentiment index, meanwhile, matched a two-year low in October.
Uncertainty generated by the looming U.S. presidential election could be one factor weighing on consumer confidence. The labor market also has slowed, though it continues to generate jobs at a fair pace.
Despite some mixed signals, economists and policy makers still expect consumers to remain a key support through the end of the year and the latest data backs that up.
“With job gains continuing and the labor market further tightening, the U.S. economy should continue to expand well into 2017,” said Gus Faucher, deputy chief economist at PNC Financial Services.
Monday’s figures showed purchases of autos and other big-ticket items surged in September — spending on durable goods climbed 1.3%.
Americans also saved a little less. The personal saving rate fell to 5.7% from 5.8% the prior month.
Inflation pressures, meanwhile, appear to be stirring though overall they remain muted.
The personal-consumption expenditures price index, the Federal Reserve’s preferred inflation measure, rose 0.2% in September from the prior month. From a year earlier, the index was up 1.2%. That was the firmest year-over-year reading since November 2014.
Inflation has fallen short of the Fed’s 2% target for more than four years.
So-called core prices, which exclude the volatile categories of food and energy, advanced 0.1% from the prior month and were up 1.7% from a year earlier.
“Today’s report reinforces a positive outlook for both inflation and the consumer,” said Brittany Baumann, a macro strategist at TD Securities.
Fed officials are watching such metrics as household spending, inflation and hiring as they weigh another move on the central bank’s benchmark interest rate.
The Fed’s policy committee wraps up a two-day meeting Wednesday.
When adjusting for inflation, consumer spending climbed 0.3% in September from the prior month. Inflation-adjusted disposable personal income — income after taxes — was flat.

Source: Dow Jones

Traders see remote chance of Fed rate hike this week

In World Economy News 31/10/2016

Traders on Monday placed a low probability the Federal Reserve would raise interest rates at its policy meeting later this week amid mixed economic data and ahead of the U.S. presidential election, according to interest rates futures.
They put about a 3-in-4 chance the U.S. central bank would increase the target range on their policy rates by a quarter point to 0.50-0.75 percent at its Dec. 13-14 meeting.
While the world’s biggest economy is hardly firing on all cylinders, U.S. gross domestic product produced a stronger-than-expected 2.9 percent annualized growth rate in the third quarter, analysts said.
“Investment is still somewhat sluggish, consumption continues to grow solidly, and this adds up to GDP growth trending near 2 percent,” Credit Suisse chief economist James Sweeney wrote in a research note on Monday.
He added recent remarks from some Fed policymakers hinted a rate increase is likely in the near future.
Meanwhile, news that the FBI is planning to review more emails related to Democratic presidential candidate Hillary Clinton’s private server, just a week before the Nov. 8 election, have reduced earlier expectations of a Clinton victory.
Federal funds futures implied traders saw a 6 percent chance the Fed would raise rates at its two-day meeting that kicks off on Tuesday, compared with a 8 percent chance late on Friday, according to CME Group’s FedWatch program. FFX6
They suggested a 73 percent likelihood of a rate hike in December, little changed from on Friday. FFZ6

Source: Reuters (Reporting by Richard Leong; Editing by Meredith Mazzilli)

Euro zone growth still slow, October core inflation dips

In World Economy News 31/10/2016

The euro zone economy grew at the same slow pace in the third quarter as the second and core inflation dipped in October, reinforcing expectations that the European Central Bank will decide to extend its asset-buying programme in December.
The European Union’s statistics office Eurostat said gross domestic product in the 19 countries sharing the euro rose 0.3 percent quarter-on-quarter in the July-September period and by 1.6 percent year-on-year.
Both figures were the same as in the second quarter and matched expectations of economists polled by Reuters.
Consumer prices rose 0.5 percent year-on-year in October, Eurostat estimated, picking up from 0.4 percent in September and 0.2 percent in August as the drag on the index from energy diminished.
Energy prices were only 0.9 percent lower in October than 12 months earlier, compared to 3.0 percent down in September.
However, excluding the most volatile prices for unprocessed food and energy, inflation was just 0.7 percent year-on-year, down from 0.8 percent in the previous five months. The figure is the one the ECB uses as core inflation.
The European Central Bank wants a higher rate of overall inflation — close to 2 percent over the medium term — and has been buying euro zone government bonds to inject cash into the banking system and make banks lend to the real economy.
The ECB meets in December and will have to decide then whether it extends its bond-buying beyond an initial target date in March. To do otherwise would essentially subject markets and banks to a cold turkey cut-off.
ECB policymakers have said accommodative monetary policy would be maintained until inflation is on a sustainable path to the target. ECB Executive Board member Benoit Coeure said on Friday on growth: “The whole discussion will be how sustained is that.”
In fact, euro zone sentiment, published by the European Commission on Friday, was much better than expected in October driven by higher optimism in industry and services, suggesting a robust start to the fourth quarter.
However, Capital Economics said it doubted this would be enough to convince the ECB to slow the pace of its asset purchases yet.
“Indeed, we still expect the Bank to announce a six-month extension of the programme at the current pace to September 2017 at its December meeting,” it said.
Howard Archer, chief European economist at IHS Markit agreed, although said it was conceivable that the ECB could announce a lower rate of purchases after March.
“Even if euro zone growth does show further signs of improvement over the coming weeks, there is a compelling case to try and fuel the improvement given past hiccups,” he said.

Source: Reuters (Reporting By Jan Strupczewski and Philip Blenkinsop)

Jobs report for October to set stage for final act in Fed interest-rate drama

In World Economy News 31/10/2016

The lights are on. The stage is set. But don’t expect the Federal Reserve to engage in the act of raising interest rates just days before voters choose between Hillary Clinton and Donald Trump.
The keepers of U.S. interest rates have hemmed and hawed about acting for the past year. They got a big go-ahead sign last week after economic growth accelerated to 2.9% in the third quarter, the best performance in two years. That was much better than the barely 1% growth in the first half of 2016 — even if a spike in soybean exports exaggerated the recent improvement.
The Fed will get another cue with this week’s report on how many new U.S. jobs were created in October.
Economists think it will offer another reason for the central bank to raise the cost of borrowing for consumers and businesses: A strong gain of around 195,000 jobs that knocks the unemployment rate down below 5% again, according to the MarketWatch forecast.
Even that probably won’t be enough, however, to get the Fed to move.
Almost all of Wall Street expects officials to wait until December to avoid a scenario in which the Fed because an unwitting last-minute star — or villain — in a very bitter presidential election.
Whatever the case, one thing is clear. The plow horse U.S. economy plods forward at a pace that should ensure a steady increase in new jobs through the end of the year, especially with job openings at a record and companies complaining of a skilled-worker shortage.
The U.S. has created an average of 178,000 new jobs a month so far in 2016, perhaps twice as much as the economy needs to soak up all the new people entering the labor force — high school and college grads, new immigrants, mothers returning to the workforce.
The “latest employment figures show employers are struggling to fill more than 5.5 million positions,” said Bernard Baumohl, chief global economist of The Economic Outlook Group. “Nor is job security particularly worrisome. Layoffs are at their lowest levels in nearly half a century.”
A tighter labor is also nudging paychecks higher.
Many companies have to pay a bit more to attract or retain workers. From September 2015 to September 2016, hourly pay rose 2.6%, just a notch below the postrecession high set during the summer. Read: U.S. employment costs keep rising
If that keeps up, wages are likely to feed into inflation and push it close to 2%, putting it within the Fed’s comfort zone.
The drumbeat of hiring and somewhat bigger paychecks aren’t making their way to everybody, though. Millions of Americans who want a full-time job still can’t find one, raising the specter of a so-called skills gap in which these people are unlikely to find lucrative work.
“We have a structural problem with unemployment,” said Joseph Brusuelas, chief economist at consulting firm RSM. “Some people between 20 and 50 don’t have enough skills” for the modern economy.
The plight of those Americans is why some inside and outside the Fed urge the central bank to let the economy run “hot.” In other words, let it grow and put inflation worries aside until many more people sitting on the sidelines are drawn back into the labor force.
That’s a debate that will play out in the future. The employment report and Fed policysetting meeting aren’t the only events on a chockfilled economic agenda this week. Auto sales and construction spending are likely to show that consumers are still looking to buy new cars or houses. The U.S. trade deficit probably fell sharply in September, government figures are expected to show.
Yet manufacturers are still struggling to grow, an ISM survey is expected to report, and productivity remains weak.
Even if the economy is doing OK in the short run, the lack of productivity growth is a longer-term danger. Only higher productivity of American workers and businesses can deliver bigger paychecks and fatter profits needed to get the economy back to its historical growth rate of 3.3%.
The economy has stumped along since 2010 at a 2% rate, but it probably won’t reach that mark in 2016 despite the third-quarter rebound. The economy is now on track for 1.9% growth this year.

Source: MarketWatch

No link between EU-Canada trade agreement and Brexit – EU’s Juncker

In World Economy News 31/10/2016

The completion of a trade deal with Canada will have no impact on negotiations between the European Union and Britain, which in June voted to leave the bloc, EU Commission President Jean-Claude Juncker said.
The European Union held a summit to sign a trade deal with Canada that was seven years in the making and had exposed some of the difficulties of sealing a trade pact. The Canadian deal was held up for weeks, most notably due to obstruction from regional governments in Belgium.
Supporters of Brexit have said Britain will be much more nimble in trade talks once it has left the EU and some have said that it could use the Canadian agreement as a framework for a future deal.
However, Juncker told reporters on arrival for the signing ceremony that he did not think the Canadian deal would have any impact on future Brexit negotiations.
“I don’t see any relation between what we are signing today and the Brexit issue,” he said before greeting Canadian Prime Minister Justin Trudeau.
EU Trade Commissioner Cecilia Malmstrom said the Canadian deal had exposed concerns among European citizens over how such deals might affect their daily lives, and called for EU government to be more transparent about future negotiations. She too said the deal with Canada had nothing to do with the EU’s talks with Britain.
“I draw no conclusions for Brexit from this,” she said.
British Prime Minister Theresa May has said Britain would commence formal Brexit negotiations by the end of March.
However, it must first settle future economic relations with the bloc, a process that could drag on longer than the formal two-year transition period.

Source: Reuters (Reporting by Robert-Jan Bartunek; editing by Philip Blenkinsop and Clelia Oziel)

Eurozone Firms Defy ECB’s Incentives to Spend and Invest

In World Economy News 31/10/2016

Eurozone firms are socking away increasing amounts of money despite the European Central Bank’s effort to encourage businesses spending and investment by slashing interest rates below zero.
ECB data published Friday show the net savings rate of nonfinancial corporations surged to 6.7% of their net income in the second quarter, a multiyear high and up sharply from 6.1% in the previous three months. Nonfinancial investment by such firms remained steady at 3.5%, where it has hovered for two years.
The data underscore the risk that, rather than encouraging consumers and businesses to open their wallets, the ECB’s subzero interest rates and other unorthodox policy tools may be causing them to squirrel more away.
Eurozone household saving in the second quarter hit 12.8%, its highest rate since late 2011, according to the European Union’s statistical office, Eurostat.
Taken together, the net savings rate of eurozone households, businesses and governments rose to 6.9% of net disposable income in the second quarter, compared with 6.1% a year earlier, according to ECB data.
That change was driven by nonfinancial corporations, whose net savings rate has risen by about 40% since the ECB cut interest rates below zero.
ECB executive board member Yves Mersch warned on Thursday that a recent rise in savings rates in many euro area countries, including France and Germany, “demands our attention.”
“Such a development would lead to even lower interest rates, as ever more savings would compete for ever fewer investment opportunities,” Mr. Mersch said in a speech in western Germany. “Greater risks of deflation could ensue.”
Policy makers in Europe and Japan have turned to negative rates to stimulate their lackluster economies. The ECB cut interest rates below zero in mid-2014 and has since doubled down on that policy, taking a key rate to minus 0.4% in March.
Lower interest rates in theory should encourage consumers and businesses to spend by reducing returns on savings and safe assets such as government bonds. Penalty rates on savings, which some businesses are forced to pay, should act as a further incentive for them to spend.
Additional spending should create demand for goods, boosting economic growth and lifting inflation rates.
However, some economists and bankers have warned that negative rates signal concerns over the growth outlook and the central bank’s ability to manage it. That means firms might be more conservative in their spending. The latest ECB data appears to support that view.
Michael Heise, chief economist at insurer Allianz SE, warned on Friday that the ECB’s current policies were ineffective and were instead sewing anxiety.
“Saving is not going down, it is slightly trending up,” Mr. Heise said at a conference at Frankfurt’s Goethe University.
“That is peculiar because saving is so unattractive,” partly due to the ECB’s policies, he said.
According to data from Germany’s central bank, German nonfinancial businesses have saved more than they have invested for the past seven years, piling up about EUR455 billion ($500.4 billion) in cash and deposits. Executives blame their reticence on a weak global economic outlook, regulatory uncertainties and geopolitical risks.
In his speech, Mr. Mersch warned that the greatest risk in the current environment was that “the expectation of lower growth in the future can lead to lower investment and excessive saving today.”

Source: Dow Jones

Not the Way You Think

In World Economy News 31/10/2016

The euro area’s recovery isn’t suffering from a dearth of investment. Quite the contrary, in fact, and the current level of investment is unsustainable without more consumer spending.
This is the conclusion of a study published on Friday by European Central Bank economist Philip Vermeulen. It runs counter to the standard narrative of the region’s upswing: a consumption-driven recovery that relies on the weak euro and on central-bank stimulus, but is sorely lacking the investment needed to put the economy on a long-term path of expansion.
To address the perceived lack of capital spending in the region, the European Commission in 2014 set up the so-called “Juncker Plan.” In Germany alone the investment gap may be around 4 percent of output, or 120 billion euros ($131 billion), according to Marcel Fratzscher, head of the Berlin-based German Institute of Economic Research.
To be fair, a comparison of the post-crisis performance of the U.S. and of the euro area shows that the latter has been lagging behind on investment, says Vermeulen.
But compared to how investment recovered after previous recessions, the current recovery is stronger on investment than on consumption: consumer spending is up only 4.1 percent from the trough in the first quarter of 2013, while capital spending is 7.7 percent higher.
“This finding is important for policymakers,” says Vermeulen. “The current recovery in investment can only be sustained if aggregate consumption also grows at a sufficiently robust pace in parallel. Policymakers would be misguided to focus on investment exclusively.”

“Instead, policies should aim for a broader recovery of aggregate demand and consumption in particular,” he writes. “The ECB’s current accommodative policy stance is therefore warranted, as it provides support for sustained growth in aggregate demand.”

Source: Bloomberg

Friday, 28 October 2016

Consumer Comfort Jumps on Big Upswing in Views of U.S. Economy

In World Economy News 28/10/2016

Consumer sentiment climbed last week by the most since January 2015 on one of the biggest gains ever recorded for Americans’ attitudes about the economy, according to figures from the Bloomberg Consumer Comfort Index released Thursday.
Key Points
Comfort gauge rose to 43.9, the highest level since early September, from 41.3
The 2.6 point increase was largest since period ended Jan. 25, 2015
Gauge of views on economy jumped to 35.9 — the highest since March — from 32.2
Personal finances measure rose to seven-week high of 56.6 from 54.3
Buying-climate measure increased to 39.3, the best since early September, from 37.4

Big Picture
The broad-based brightening of consumers’ attitudes is reassuring after index readings languished over the past two months, and may indicate household spending will remain steady heading into the holiday-shopping season. At the same time, the latest reading marks the biggest one-week jump since early last year might be difficult to sustain absent a more meaningful boost to wages. Ahead of the U.S. election on Nov. 8, Americans of all political affiliations registered greater optimism, though the gap between Democrats and Republicans widened to the largest in nine weeks.

The Details
Comfort among political independents jumped 3.4 points, while it rose 3.2 points for Democrats and 1.5 points among Republicans
Sentiment improved in three of four regions, led by the South, where it rose 5 points
Confidence among respondents ages 18 to 34 jumped 6 points last week, the first increase in seven weeks; each of the older four age groups increased less than 2 points
Americans making between $25,000 and $40,000 were the most upbeat since April 2015, and sentiment among the unemployed climbed to the highest since March 2015

Source: Bloomberg

The Fed May Not Have a Magic Number for Hike Bets: Strategists

In World Economy News 28/10/2016

The Federal Reserve may not be so worried about getting markets’ buy-in for a rate hike.
Last year, as the Fed was looking to get off the zero lower interest-rate bound for the first time in years, former U.S. Treasury Secretary Larry Summers observed that the bank had never in the previous 20 years raised rates without the futures market pricing in at least a 70 percent chance of a hike.
Markets are currently pricing in a 72 percent chance of a rate hike by the December meeting, according to data compiled by Bloomberg — but strategists suggest Summers’ criterion may be a necessary but not sufficient condition of that move. Here’s what they said in interviews about whether market bets will sway the Fed:
BMO Capital Markets (Ian Lyngen)

“I don’t know that there’s a magic number” for the Fed to hike rates, but at the current level from the market’s perspective, the Fed has “certainly done a commendable job in prepping the market for a rate hike.”
Market pricing is “clearly no longer a hurdle” for the Fed to hike in December. “If they were worried about surprising the market, that’s no longer a concern.” The next few weeks shouldn’t “materially change” the market’s expectations for where rates will go, but “will determine if it’s a choppy path to get there.”
Bank of America (Michelle Meyer)

Current market pricing is “appropriate” and is “a function of what the Fed has attempted to convey.”
The Fed has been “very clear” in its communication from the September meeting and press conference; officials “clearly signal” intention to hike before year-end, and speeches thereafter have reinforced that. Data has been “generally fine” enough to justify a December hike but growth and inflation figures are unlikely to be at the “exceptionally strong” level needed to force a hike in November.
BNY Mellon (Marvin Loh)

The current market pricing “certainly makes it easier” for the Fed to hike as markets “won’t be shocked,” though it still must be “economically justified.”
A November hike is a “distant, distant probability.” The argument in favor of November would be that it could show Fed “independence” from financial markets, but “they certainly haven’t.”
Credit Suisse (William Marshall)

If the market maintains current pricing expectations, that will be “more than enough to make the Fed comfortable” with hiking. Most of the work in terms of prepping the market for a hike before year-end has already been done.
The Fed is still “data dependent.” Payrolls and inflation are “critical” leading up to December, as economic signals “aren’t so strongly in favor of a hike,” but there’s still “enough desire” for Fed to see more prints.
“What’s still striking to me is that we certainly have priced in more this year, but still a very shallow path, and not a ton of path being priced in for end of next year… the market isn’t totally off base, it’s a degree of wanting to see evidence that the economy is strong enough to allow for more tightening.”
JPMorgan (Michael Feroli)

If the Fed does hike in December, “by the time we get to that meeting, the expectations would be even greater than they are now.” Feroli agrees with Evans’s call for 3 hikes between now and end-2017.
It would be “harder for Fed to move” if monthly job gains average below 100,000, and it’s “hard to say” if the election can be dismissed as a risk event for the Fed to act independently of results.
Macquarie (Thierry Wizman)

Wizman still sees the odds of a December hike at 75 percent. Time is the most important factor in the Fed’s decision, as with less time, there’s a lower probability of negative surprises. The election is also important, as a “status quo outcome politically to lead to rate normalization.”

Source: Bloomberg

Mayor of London says banks must have post-Brexit access to Europe

In World Economy News 28/10/2016

Failing to maintain access for banks to the European Union market after Brexit would be an act of “economic sabotage” that would ripple across Britain, London Mayor Sadiq Khan will say on Thursday.
Banks in Britain have said they are preparing to move staff and activities to mainland Europe as soon as next year unless access to the bloc’s single market is maintained after Brexit.
Khan was due to make the remarks in a speech at a dinner in the City of London financial district, when he will also say that mishandling Brexit might have the biggest impact on financial services since “Big Bang” deregulation 30 years ago.
That event helped to propel London to the top of the global financial centre league tables, a ranking that will be hard to keep without EU market access, bankers have said.
“If the proper agreements aren’t negotiated, there will be serious knock-on impacts with jobs and billions of revenues lost – something that would hit the entire country, not just London,” Khan will say.
“It’s frustrating, to say the least, that much of what we are saying seems to be falling on deaf ears.”
Khan, a member of the opposition Labour Party, will call for Britain’s Conservative government to get a “unique” deal that would avoid denting financial services, the economy’s single biggest sector.
“If we fail to get a good Brexit deal, businesses are more likely to move to New York, Singapore and Hong Kong than to other cities in Europe,” Khan will say.
A tenth of staff in the City are from other EU countries.
Banks in London have an “EU passport” allowing them to operate freely across the bloc, but bankers expect that after Brexit, any access to the European market will be on less favourable terms than now.

Source: Reuters (Reporting by Huw Jones; Editing by Louise Ireland)

Brexit Doomsayers Defied as Economy Expands and Nissan Invests

In World Economy News 28/10/2016

The pessimists will have to wait.
The U.K. economy performed better than anyone expected since the vote to leave the European Union and, as a bonus, Nissan affirmed its commitment to the U.K. with a decision to build two new car models at its plant in Sunderland.
Both give those who championed a split fresh reason to cheer and helped to counter the pre-referendum warnings from the Treasury and most economists that choosing Brexit would cast the economy into recession and repel foreign investment. The question now for the economy, and those charged with leading it through the messy divorce from the EU, is whether that resilience endures or soon crumbles.
“This is a really long, drawn-out process and we’ve just seen the early start of it,” former Bank of England policy maker Danny Blanchflower said in a Bloomberg Television interview. “The suspicion is there’ll be more slowing to come — we’re in a fairly benign world with perhaps a tsunami coming.”
As the Office for National Statistics announced that growth was 0.5 percent in the third quarter — above the 0.3 percent forecast — it said there was “little evidence of a pronounced effect” from the referendum. That pushed gilt yields to the highest since the vote. GDP rose 2.3 percent compared with a year earlier.
Nissan Boost
Then came the news that 7,000 autoworkers in Sunderland had been awaiting as Nissan, the U.K.’s biggest carmaker, said it will increase investment in its north east England plant and secure jobs by churning out the next generation versions of some of its best-selling cars. Around the same time, the Confederation of British Industry pronounced that consumer spending remains healthy, with its retail index rising to the highest in more than a year.

The car maker linked its decision to “support and assurances” from the government, days after Chief Executive Carlos Ghosn met with Prime Minister Theresa May having called on her to compensate the company for any negative Brexit consequences as a condition for new investment.
The government welcomed the news, with May saying Nissan’s announcement “shows Britain is open for business.’’ Her predecessor David Cameron invoked Nissan in March in a warning that leaving the EU meant the “ongoing presence of car manufacturing at this scale simply can’t be guaranteed.”
London Building
Nissan isn’t the only company to commit to the U.K. this week. Even with questions over how London-based financial institutions will do business with the EU after Brexit actually happens, Axa SA’s real estate unit said it will proceed with a plan to build the tallest approved tower in the City of London. It had reviewed the project after the referendum.

The latest U.K. expansion marked a 15th quarter of growth and leaves the economy on course to match Germany and outpace the broader euro-area this year, underpinning the case of those who argue the U.K. didn’t need to be in the EU to prosper.
“In the short term this is a relief for the euro skeptic and hard-core pro-Brexit camp,” said Carsten Nickel, deputy director of research at Teneo Intelligence in Brussels. That “could pose additional risks, in my view, for the medium- to longer-term because the more emboldened this constituency feels, the more dangerous this gets for the outlook.”
The headline GDP number only tells part of the story, with expansion entirely driven by services. Manufacturing, construction and agriculture all declined in the quarter, and Blanchflower said “the suspicion is there’ll be more slowing to come.”
In a blow to banks, Trade Minister Mark Garnier told Bloomberg on Wednesday that they’re unlikely to keep enjoying so-called passporting rights which enable them to operate within the EU from bases in London. Barclays CEO Jes Staley said Thursday his finger isn’t “quivering” above the relocation button, and there would be no “one momentous decision” on the issue.
Still overhanging the U.K. is when May will trigger formal exit negotiations and just what her plan is for future relations with the bloc. That’s creating uncertainty that could still prompt banks to flee and put the brakes on company and household spending.
Despite being wrong-stepped by the economy’s fortitude so far, most economists counsel that the Brexit effect will take time. The median forecast for 2017 is for expansion of about 1 percent, half the pace projected for this year, and an acceleration in inflation is already eroding incomes.
BT Group Plc Chief Executive Officer Gavin Patterson said Thursday that a “high degree of uncertainty’’ in the U.K would still put “investment at risk across the whole of the market.” Telefonica SA delayed a potential sale of shares in its O2 U.K. mobile-phone unit until at least next year, and Switzerland’s ABB Ltd. said orders plunged because customers were less willing to make big purchases amid the U.K.’s withdrawal.
“What is damaging first and foremost is the uncertainty,’’ IMF Managing Director Christine Lagarde told Bloomberg Television today. “What will be the relationship? It is not healthy. For the next two-and-a-half years we know that the situation is unchanged and yet everything is changed.”
Source: Bloomberg

Britain will leave the single market – UK minister for Scotland

In World Economy News 28/10/2016

Britain’s decision to leave the European Union will also mean leaving the single market, one of Prime Minister Theresa May’s cabinet ministers said on Thursday.
“If we are leaving the EU, we are leaving the single market,” Secretary of State for Scotland David Mundell told Scottish lawmakers at a special hearing on the implications of Britain’s vote to leave the European Union.
The implications of Britain’s EU exit upon its access to the bloc’s 500-million consumer single-market remain unclear.
Businesses and financial markets fear that if Britain loses unfettered access to the single market the economy will suffer, and fears that it may do so have sent the pound sharply lower.
Mundell told a devolved Scottish parliamentary committee that Britain’s future relationship with the EU would not replicate current structures.
His comments touch upon one of the biggest unknowns thrown up by the June EU referendum – wat type of trading relationship does Britain want with its biggest economic partner?
Mundell has a seat at May’s cabinet table but is not considered one of her closest advisers.
To date, May has indicated that she wants a bespoke deal that allows Britain to end free entry of EU nationals into the country – a demand which is widely seen by other EU states as scuppering the possibility of full access to the single market.
May told parliament this week that access to the single market was important, without saying what form that access would take.
“I have been clear…(about) the importance that we place on being able not just to trade with but to operate within the European market, and that is for both goods and services,” she said.
The centuries old union between England and Scotland has been strained by the result of the June referendum because Scotland voted to stay in the EU while England voted to leave.
The devolved Scottish government has set free movement of goods and services as a central demand in talks which will shape Britain’s new relationship with the bloc.
Nicola Sturgeon, the head of Scotland’s devolved government, has called for a “coalition” across Britain in support of single market membership, and says that if Scotland’s links to the EU are not maintained as part of a Brexit deal a referendum to split Scotland from the rest of the United Kingdom is an option.
Mundell did not answer a question on whether he still supported Britain remaining in the single market, replying that he was committed to achieving the best possible deal by getting Scotland to work together with London.

Source: Reuters (Reporting by Elisabeth O’Leary; Editing by Angus MacSwan)

UK economy set to sidestep third-quarter slump, but tougher times lie ahead

In World Economy News 28/10/2016

Britain escaped a severe economic slowdown in the three months after the Brexit referendum shock, official figures are expected to show on Thursday, further diminishing the chance of a fresh interest rate cut by the Bank of England next week.
With consumers so far shrugging off worries about voters’ decision to quit the European Union, economists polled by Reuters have, on average, estimated that the economy grew by 0.3 percent in the July-September period from the previous quarter.
Many of those analysts are forecasting growth as high as 0.4 percent, slower than the 0.7 percent expansion in April-June but better than the most recent forecast by the BoE.
The data from the Office of National Statistics (ONS), due at 0830 GMT, will provide the first broad picture of the economic hit from the Brexit vote.
Many private economists initially expected it would cause a recession. The BoE said as recently as September that the preliminary ONS reading would probably show growth in the third quarter of only 0.2 percent, though it expected the ONS eventually to revise that to 0.3 percent.
The central bank will decide next week whether to cut interest rates further from their all-time low of 0.25 percent, something it hinted at as recently as last month.
But a sharp fall in the value of the pound is likely to push up inflation, something BoE Governor Mark Carney noted on Tuesday.
A Reuters poll of economists shows they now do not expect the BoE to ease policy until early 2017.
By then, the economy is widely expected to be slowing more sharply as a result of Brexit.
Prime Minister Theresa May has said she plans to launch formal divorce talks between Britain and the EU before the end of March, kicking off a two-year negotiation process that is likely to discourage many firms from investing.
Around the same time, British households are likely to be feeling the pinch from higher inflation.
The BoE expects British economic growth to slow sharply to 0.8 percent in 2017, down from 2 percent this year.
Finance minister Philip Hammond will also pay close attention to Thursday’s GDP figures.
He is due to announce his first budget plans on Nov. 23 and has suggested he could approve higher levels of public spending if necessary to help the economy cope with the Brexit slowdown.

Source: Reuters (Editing by Kevin Liffey)

Hammond says economy needs support despite third quarter growth

In World Economy News 28/10/2016

The Chancellor of exchequer Philip Hammond said he would need to take steps to support growth in his first budget statement next month, despite data on Thursday showing the economy slowed less than expected after Britain voted to leave the European Union.
“I think it is right that we still prepare to support the economy during the coming period to make sure that we get through this period of uncertainty,” Hammond told reporters.
“All the forecasters suggest that next year will be slower,” he added.
Official data earlier on Thursday showed that growth slowed only moderately to 0.5 percent in the three months to September from 0.7 percent in the previous quarter, half the slowdown forecast in a Reuters poll.

Source: Reuters (Reporting by Estelle Shirbon and Helen Reid, writing by David Milliken)

Eurozone Lending Growth May Not Satisfy ECB

In World Economy News 28/10/2016

Lending to eurozone households and businesses continued to grow at a steady rate in September, data from the European Central Bank showed Thursday.
The data indicate that underlying conditions for loan growth remain favorable but may be lower than the ECB hoped, suggesting that the central bank’s stimulus measures haven’t fully been transmitted into the economy. In fact, the current reading may even disappoint the ECB, analysts say.
Lending to households grew by 1.8% in September on the year, the same as in August, the ECB said. Lending to firms grew by 1.9% on the year, also maintaining the pace of the previous month.
The central bank’s M3 money supply indicator grew 5.0% on the year in September after 5.1% in August. Economists polled by The Wall Street Journal had expected growth of 5.1%.
The ECB hopes that its generous monetary policy stance, which includes large-scale assets purchases of ?80 billion ($87.2 billion) each month, and loans to banks designed to motivate them to lend on to the eurozone economy, will revive lending in the single currency area.
“The ECB will likely be disappointed overall with the September eurozone lending data, particularly that loans to non-financial businesses were only flat in September,” said Howard Archer, chief U.K. and European economist at IHS Global Insight.
The current batch of data might well underline market expectations that the ECB will add more stimulus to the existing ones at its December meeting.
“Flat loans to businesses in September fuels belief that the ECB is more likely than not to take further stimulative active in December,” Mr. Archer said.
Markets are increasingly positioning themselves for an extension of the ECB’s assets purchases by at least six months beyond the current March 2017 finishing date. Market participants also expect adjustment to the conditions of the purchase program to increase the pool of assets eligible for purchase, and thus, to avoid a growing scarcity of available bonds.

Source: Dow Jones