U.S. President Donald Trump’s planned economic agenda has fanned the flames for Wall Street’s record-setting run, but some investors worry that his first major address to Congress next week risks dousing it if his plans look slow to execute or are overly vague.
The benchmark S&P 500 has surged 10 percent since Trump’s Nov. 8 election, with optimism running high over the Republican administration’s domestic proposals, including plans to reform taxes paid by businesses.
But there have been few specifics so far, and some investors believe Trump may need to provide more than just generalities when he gives his first major presidential address on Tuesday.
“If he comes out next week and there are little or no details other than that it is going to be great, that is going to be a time where we could have the first sort of crack in the armor,” said JJ Kinahan, chief market strategist at TD Ameritrade in Chicago.
Trump has said enough so far to help propel major stock indexes to all-time highs. The Dow Jones Industrial Average this week marked its longest run of consecutive record-high closing prices in 30 years.
With stock valuations expensive, many market participants are bracing for a pullback. The S&P 500 is trading at nearly 18 times forward earnings estimates versus the long-term average of 15 times, according to Thomson Reuters data.
In Tuesday’s speech, “the market wants to hear about concrete tax reform plans that have traction either across the Republican base or have the potential to reach across to moderate Democrats,” said Alan Gayle, director of asset allocation with RidgeWorth Investments in Atlanta.
“If the market begins to doubt Trump’s ability to follow through on his promises, then I would think that we would see a 5 percent market correction fairly easily,” Gayle said.
Investors are also watching for hints about timing of Trump’s economic plans. U.S. Treasury Secretary Steven Mnuchin on Thursday laid out an ambitious schedule to enact tax relief by August.
“The one thing that could stall this rally would be any sort of indication that we won’t see the bulk of the effects this year,” said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland. “I think that would take some of the air out of the enthusiasm.”
Investors will also be listening for comments about the border adjustment tax being pushed by Congressional Republicans, about which Trump spoke positively in a Reuters interview on Thursday after having previously sent mixed signals.
Ahead of Trump’s address, the stock options market was not yet foreseeing a huge reaction to the speech, bracing for a move of 0.9 percent in either direction by Wednesday’s close, according to pricing on at-the-money straddles on S&P 500 index options.
Investors appeared to show comfort wading into the stock market, according to Lipper data released on Thursday, with U.S.-based stock funds attracting $2.7 billion in the latest weekly period, their fourth consecutive week of inflows.
However, one high-profile investor, Jeffrey Ubben of activist investor ValueAct Capital, told Reuters on Wednesday that his firm had been taking money out of the capital markets as valuations have become overextended.
Beyond tax reform, investors will be eager to learn more about Trump’s plans for repealing the Affordable Care Act, reducing regulations on businesses and increasing infrastructure spending.
Just this week, shares of engineering and construction companies gave up some of their post-election gains on concerns Trump’s infrastructure package would be put off until next year.
But while some investors are eager for policy specifics, the bigger picture is the change in the White House, said Bruce Bittles, chief investment strategist at Robert W. Baird & Co in Sarasota, Florida.
“This whole rally in the stock market is based on the premise that we have moved to a pro-business administration in Washington, D.C. from an anti-business administration,” he said. “The details, I think, are just noise.”
Source: Reuters (By Lewis Krauskopf, Additional reporting by Chuck Mikolajczak; Editing by Meredith Mazzilli)
Europe should impose punitive tariffs on imports from the United States if President Donald Trump acts to shield U.S. industries from foreign competitors, a senior ally of German Chancellor Angela Merkel said in a newspaper interview.
Trump has already formally withdrawn the United States from the Trans-Pacific Partnership trade deal, distancing America from its Asian allies, and vowed to renegotiate the U.S. free-trade deal with Canada and Mexico.
The tycoon-turned-president has also threatened German carmakers with a border tax of 35 percent on vehicles imported into the U.S. market, saying such a levy would help create more jobs on American soil.
“If Donald Trump imposes punitive tariffs on German and European products, then Europe should also impose punitive tariffs on U.S. products,” Volker Kauder, parliamentary floor leader of Merkel’s conservatives, told the Funke media group in an interview published on Saturday.
“We cannot accept everything,” Kauder added.
He said German officials would have to remind “our friends in Washington” that trade wars in the past had already shown that both sides only lost from such measures.
“We just have to say calmly and with self-confidence: If Trump carries out what he said, then Europe must react,” Kauder said.
The German government has vowed to protect global free trade after Trump threatened protectionist measures and his top adviser on trade accused Germany of exploiting a weak euro to boost exports.
German Vice Chancellor Sigmar Gabriel has suggested that the European Union should refocus its economic policy toward Asia, should the Trump administration pursue protectionism.
In a sign of already shifting trade flows, China became Germany’s most important trading partner for the first time in 2016, overtaking the United States, which fell back to third place behind France, data showed on Friday.
Source: Reuters (Reporting by Michael Nienaber; editing by Richard Lough)
For all of Donald Trump’s America-first pro-growth rhetoric, analysts don’t think the global economy can afford the US president’s protectionist policies.
At the heart of Trump’s protectionist policies is the notion that free trade and globalisation have not benefited the middle and lower class, and created further income inequality. But economists argue that Trump turning his back on globalisation in favour of protectionism can hurt the US’s economy, especially the very social classes Trump vowed to help.
Alp Eke, senior economist at the National Bank of Abu Dhabi, cited the International Monetary Fund and other research institutions, saying that protectionist policies “will definitely be counterproductive and will hinder growth and cause uncertainty.”
“Uncertainty about the future will slow down investment, and eventually, consumption as business will reduce jobs. Right-wing candidates are gaining popularity in Europe as well, which may mean more protectionist/populist measures are expected.
This development is worrisome at a time where expansionary monetary policies coupled with negative interest rates started to reach its limits and further measures will be ineffective,” he said.
While talks of protectionism have centred on Trump’s policies, Europe is witnessing a similar trend. The UK’s decision to leave the European Union was also backed by protectionist rhetoric, with right-wing movements in France and Germany voicing similar interests.
In the US, after just a few days into office, Trump signed an executive order to pull the States out of the Trans-Pacific Partnership, a 12-nation trade deal that includes some of the world’s largest economies. The countries remaining in the pact are Canada, Japan, Australia, New Zealand, Peru, Malaysia, Mexico, Vietnam, Chile, Singapore, and Brunei.
A report issued by HSBC’s global research division on January 26 said the US’s withdrawal from TPP is having a negative impact on business sentiment “at a time the global economy can ill afford it.”
“From some news reports, it appears that the withdrawal may have emboldened advocates of protectionism in the United States and potentially elsewhere — a development that could prove even more costly to the economy.
Unfortunately, the forgone growth potential associated with exit from TPP may leave the US economy worse off than it otherwise would have been,” the report said.
It pointed that exiting the TPP also hurts progress in addressing issues related to the environment, worker rights, and protection of business.
UAE trade position
In the UAE, where the government has been boosting efforts to position the country as a trade hub, analysts don’t expect protectionist measures around the world to have a significant impact on the economy.
“Even though protectionist measures may gain popularity in the US and Europe, UAE trade will not be impacted severely. The UAE is expected to benefit greatly by Iran’s integrating into global economy, trade, and investment ties are strengthening with India as well,” NBAD’s Eke said.
For the US and Europe, analysts don’t expect to see the impact of such protectionist policies in the very near future.
In its report, HSBC said the economic damage from the cancellation of the TPP in its current form will come from “forgone future gains in the region, translating into lower rates and less innovation than would have otherwise been the case.”
“Those lost gains may not be obvious to some observers, but they are real. Slow growth in the TPP region could spill over into other regions through low TPP-country import demand,” the report said.
Naeem Aslam, chief market analyst at Think Markets, agreed with that view, saying it was difficult to knit a scenario under which protectionist policies could stimulate growth.
“Here we are … and both Donald Trump and Theresa May (UK Prime Minister) are in the driving seat. Perhaps they will be able to carve some deal which could be beneficial for their own countries, but for global growth, it is not beneficial. We will not see the impact of these protectionist policies for a few years to come,” he said.
And creating further risk for the world’s economy is the fact that Trump seems unpredictable, and economists are still unable to gauge his intentions, with some expecting possible trade wars as a result of the US president’s protectionist policies.
In his first week in office, for example, he signed an executive order to build a wall along the Mexican border — a campaign promise many had long dismissed as unfeasible, unpractical, and too pricey.
It is still uncertain how the wall would be funded, but the White House raised the possibility of imposing a 20 per cent tariff on goods imported from Mexico to pay for the wall. Economists argue, however, that it would be companies and consumers in the US that end up bearing the brunt of the tariffs.
Paul Krugman, a Nobel Prize-winning economist and professor in the Graduate Centre Economics PhD programme, pointed that, if imposed, the tariff would mean trade barriers starting to go up all around the world as many other countries may follow suit in imposing similar tariffs.
“The risk wouldn’t so much be one of retaliation — although that, too — as of emulation: If we treat the rules with contempt, so will everyone else. The whole trading system would start to unravel, with hugely disruptive effects everywhere, very much including US manufacturing,” he said in an opinion piece for The New York Times.
BRICS countries should make joint efforts to maintain the openness of global economies and oppose trade protectionism amid worldwide economic sluggishness, China’s top diplomat said on Thursday.
This year’s BRICS summit, which will be attended by leaders from Brazil, Russia, India, China and South Africa, will be held from Sept 3 to 5 in coastal Xiamen, Fujian province, State Councilor Yang Jiechi announced at the opening ceremony of this year’s first BRICS Sherpa meeting, held in Nanjing, Jiangsu province.
Sherpas are senior diplomats and officials in charge of coordinating affairs ahead of the BRICS summit.
With the past decade’s cooperation, BRICS has become an important force to boost economic growth and improve global governance, Yang said, adding that there remains great potential for cooperation between the BRICS countries.
“The advantages of complementary resources of the five countries are yet to be developed,” he said.
Yang proposed that the five nations work together to raise the voices of developing countries and emerging economies in global affairs.
Yang cited an International Monetary Fund report that said emerging markets and developing countries contributed about 80 percent to global economic growth last year.
More than 100 representatives, including diplomats and bankers, attended the Sherpa meeting, which will end on Friday. The theme of the Sherpa meeting was to deepen BRICS partnership and create a brighter future.
China holds the BRICS presidency this year. In a letter to the leaders of BRICS countries on Jan 1, President Xi Jinping predicted that they will continue to make progress on cooperation and play a bigger role in international affairs in the next decade.
“In accordance with an open, inclusive and win-win BRICS spirit, China will work with other BRICS countries to make the Xiamen summit a success and move BRICS cooperation to a new level,” Xi said in the letter.
Anil Sooklal, director-general for Asia and the Middle East for South Africa’s Department of International Relations and Cooperation, said China has chosen a very appropriate theme－strengthening BRICS partnership for a brighter future－for this year’s meeting.
This year is one of the most difficult that the world has experienced as a global community, said Sooklal, who is South Africa’s Sherpa at the meeting. He cited uncertainties brought by the new US presidential administration and problems in the European Union.
“This provides a major vacuum on the global stage, and BRICS is the only coherent forum－the five countries are a powerful force for good in the world,” he said, adding that BRICS is well placed to show global economic leadership.
Sergey A. Ryabkov, Russian deputy minister of Foreign Affairs, said, “It’s perfectly fine that China tries to present BRICS as an association with global reach.”
“BRICS is not against anyone. We have an open mind,” he added.
Economic turnaround in Russia and Brazil may be tempting investors back to BRIC equity funds, with EPFR Global on Friday reporting such funds took in new cash for two weeks in a row for the first time in five months.
The Boston-based fund tracker said funds dedicated to the BRIC cohort – Brazil, Russia, India and China – had received $45 million so far in 2017 from investors, taking in $16.7 million in the past week and $29 million the week before.
The gains come against the backdrop of emerging equities hitting multi-month highs and funds tracked by EPFR enjoying the longest inflow streak since mid-2016 – thanks to robust commodity prices, rising company earnings and expectations of a benign U.S. Federal Reserve.
But BRIC funds, based on countries grouped together by former Goldman Sachs economist Jim O’Neill, have remained largely out of favor compared to their heyday a decade ago, and the category has come to be seen as an arbitrary one.
Slumping commodity prices tipped Russia and Brazil into recession after 2014 and fears have grown about China’s debt levels and ability to curb capital flight. While India is in favor now, a large current account deficit in 2013 almost sparked a severe financial crisis.
Now, as both Brazil and Russia return to growth amid commodity price stabilization and fiscal and monetary reforms, interest in BRIC funds may grow. But investors are still more likely to invest via funds dedicated to individual BRIC members.
So far in 2017, Brazil-, China- and Russia-dedicated equity funds tracked by EPFR have received around $1 billion each, with Brazil posting its biggest weekly inflow this week since end-2014.
India funds bring up the rear, having taken $380 million this year, albeit after absorbing $2.3 billion in 2016, EPFR data shows.
Signs are that BRIC as an investment concept will not recover to previous levels.
The number of active BRIC funds had fallen to 79 at the end of 2016, down from 98 a year before and 106 toward end-2014, according to Lipper, a Thomson Reuters company. Among the BRIC funds to shut was the one run by Goldman Sachs Asset Management, where O’Neill worked, closing in 2015.
BRIC funds’ net assets have shrunk to 4.6 billion euros ($4.87 billion) from 7.2 billion euros two years before and a fifth of end-2010 levels, Lipper data shows.
Last year, BRIC funds tracked by EPFR suffered over $1 billion in outflows last year after shedding $1.5 billion in 2015.
Bank of America Merrill Lynch in a recent note described the BRIC grouping as “strange”, with few similarities among its member countries other than size.
“Two are big commodity producers and two are big commodity consumers, hence their currencies and economies are often out of sync. Their political systems and growth models are different,” BAML said in the note, suggesting “BRIC” be shortened to “IC”.
“The bottom line: we think it is time to break up the BRICS”
Source: Reuters (Reporting by Sujata Rao; editing by Andrew Roche)
Investors may have moved into more defensive names this week, but this isn’t necessarily a warning signal on the economy, strategist Liz Ann Sonders told CNBC.
Bonds and bond-proxy stocks like utilities and telecom did well, while the market rally took a pause on Friday.
Sonders believes it is simply a rotation, some of which is reflected by falling correlations. In other words, stocks and other assets are beginning to move in opposite directions after trading in lockstep.
And that benefits diversification and active management, she explained.
“I wouldn’t yet suggest it signals sort of impending doom for the economy because of that defensive nature,” the chief investment strategist for Charles Schwab said in an interview with “Power Lunch.”
In fact, Sonders thinks this still an ongoing, secular bull market. Her advice — don’t sell in anticipation of a pullback.
“I would be more of a buyer on a pullback,” she said. “The bull market lives on.”
Equities have moved higher since President Donald Trump’s victory, with investors anticipating tax cuts, deregulation and infrastructure spending that they think will boost the economy.
However, Sonders said there has also been a turn in the economic data and earnings that have moved back into positive territory.
“The fundamentals were already there to support the market. The problem now of course … is that the expectations bar has been set high.”
And the big driver of earnings has been the turn in the energy sector, and that will soon fade as a factor in terms of year over year comps, she explained.
“You are going to need some stronger top line growth looking out beyond this turn from negative to positive in earnings because valuation is stretched enough that I think earnings need to do more of the heavy lifting,” Sonders noted.
“But I think we’re in decent shape in terms of earnings and the economy. I think the fiscal stimulus would be additive to that.”
Noah Blackstein, portfolio manager at Dynamic Funds, also believes earnings are going to be the key driver for stocks.
The recent uptick in earnings has helped close the valuation gap, he explained.
And now that “everything is sort of kind of fairly valued across the board, it’s going to be individual companies’ earnings reports that will drive individual stocks probably for the rest of the year and news out of Washington in terms of living up to the promises of the election,” he told “Power Lunch.”
The European Central Bank will not put a sudden end to its asset purchase programme, ECB policymaker Jens Weidmann said in an interview with German newspaper Frankfurter Allgemeine Sonntagszeitung.
In comments due to be published on Sunday, Weidmann reiterated his criticism of the ECB’s asset purchases, saying he saw them “very critically”.
“Given that debts are still high in some euro zone countries, that could cause pressure to build on monetary policy to keep interest rates low for longer than is absolutely necessary,” said Weidmann, who is also an ECB policymaker.
But he added: “The ECB (Governing) Council will not end the purchases all of a sudden now.”
Source: Reuters (Reporting by Michelle Martin; Editing by Hugh Lawson)
Over the years, euro zone economic growth has been a bit like the Sirens in Homer’s Odyssey: singing a song of promise, only to end up pulling you onto the rocks. Will it be different this time?
The strong growth registered in numerous data releases and surveys at the beginning of this year has surprised many.
One eye-opening example was the release of flash purchasing managers indices for France, Germany and the euro zone on Feb 21. Of nine indexes, eight registered growth and six did so at a higher level than any economist polled by Reuters had imagined.
Not surprisingly, economists and policy-makers are now looking for firm proof that the euro zone’s apparent rebound this year is sustainable, as well as noting a variety of potentially destructive economic and political hazards ahead.
There has not been, they say, a specific inflexion point at which it can be said that the euro zone has recovered and is off on a growth tear. Rather it has been a slow simmer.
“The euro zone has been recovering steadily for three years now, helped by monetary policy stimulus, an end to fiscal austerity and a healthier financial sector,” said James McCann, OECD economist at Standard Life Investments.
“(It’s) a steady recovery which has been trundling on.”
The numbers confirm this. The European Commission notes that real GDP in the euro zone has grown for 15 consecutive quarters – a sign of steady improvement.
But putting aside some of the latest data, it has been steady rather than spectacular. Economic growth is still running at only around 1.6 percent annually, and most forecasters – from economists polled by Reuters to the Commission itself, reckon it will be about the same this year.
So the question is whether the recent data has turned this on its head. Even before considering whether Greece’s debt problems will come back to bite the euro zone, there are two main strands: inflation and elections.
OF POLITICS AND INFLATION
While the repetition of positive January and February data in the month ahead – for example, German industrial orders soaring again – would fuel the euro zone takeoff story, inflation may hold the key.
“The risk of disappointment is that higher headline inflation decelerates real income growth and consumption,” said Paul Mortimer-Lee, global head of market economics at BNP Paribas.
The preliminary reading of February euro zone inflation, to be reported on Wednesday, is expected to come in at 2.0 percent year-on-year, rising to the European Central Bank’s target on the back of monetary stimulus and economic growth.
While far from hyper, such a level has not been seen for four years, and there has been a strong inverse path taken between inflation and retail sales over the last five years.
In other words, rising prices can hurt consumer spending, which in turn drives economies.
Unemployment during the financial crisis accounts for some of the dive in retail sales seen on and off since 2008. But joblessness, though improved, is still twice that of, say, the United States.
So if euro zone inflation were to overshoot in the coming year, it may well stifle the very growth that engendered it.
Economists, however, also see a growth killer in the bloc’s politics.
Many have long argued that the euro zone cannot compete as a leading economy without substantial structural reform – particularly in the number two and three economies after Germany.
“It comes down to France and Italy stepping up a gear,” said Florian Hense, European economist at Berenberg private bank.
But it is exactly in those two countries where politics is threatening to delay or derail the type of pro-growth structural reforms advocated by the European Central Bank and many private sector economists.
In Italy, the chances of an election this year have diminished, but the political turmoil surrounding the resignation of prime minister Matteo Renzi is likely to set back major reforms until an election takes place.
It is France, however, that is seen providing the biggest risk. Two of the top three candidates are viewed as economic reformists, but they are up against Marine Le Pen, the far-right National Front candidate whose pledge to put France’s EU membership to a referendum could de-stabilize the region’s economy for years.
Le Pen is not supposed to win, according to polls. But neither was U.S. President Donald Trump or those in Britain wanting to leave the Europe Union.
“If a rising France joins a still strong Germany at the core of Europe, the economic and political outlook for the euro zone as a whole could improve considerably,” Berenberg economists told clients.
“(But) a President Le Pen would spell the end of reform hopes for France and the EU for the next five years.”
Source: Reuters (By Jeremy Gaunt, Editing by Mark John)
Devastated by the collapse of its iconic wine industry over a century ago, France may have inadvertently discovered the ideal way for central banks to aid an economy in crisis – open up the purse strings.
The Great French Wine Blight, caused by an infestation of phylloxera aphids, laid waste to much of the French countryside in the second half of the 19th century, killing more than a third of vines and threatening to wipe out the entire sector.
Enter the Banque de France, the country’s central bank. Research released on Friday by the European Central Bank, itself something of a throw-money-at-the problem place, found that funding action may have saved many businesses.
It was not just the vineyards. Wine provided an income for over a fifth of the French population and accounted for 6.4 percent of GDP before 1862, the paper said. That figure dropped by more than half by 1890 due to the blight, a pest accidentally imported from the United States.
Companies failed by the thousands but the ECB discovered that their lenders’ access to Banque de France funding may have reduced default rates by 10 to 15 percent for non-agricultural firms – and without an undue increase in risk for the central bank.
The finding is significant as central banks continue to debate how much access lenders should have to their funding. Too much may increase risk taking and constitute a subsidy, while too little could amplify the impact of crises.
In 19th century France, only lenders in certain regions had widespread access to Banque de France funding while others were mostly cut off, even as the disease spread quickly and the government budget made no attempt to mitigate the collapse of wine production.
Eligibility was based on a rather simple circumstance: physical proximity to a central bank branch office. Payment collectors had to physically go to the debtor’s place, thus only bills payable near a central bank branch were in reality eligible for its discount window.
“A counterfactual exercise shows that defaults would have been 10 to 15 percent higher in the absence of the Bank of France branch network, an economically significant magnitude,” the ECB paper said.
“We show that the central bank did not make losses on its extended discount operations,” it added. “The – ceteris paribus (all things being equal) – observed decrease in the default rate was thus due to central bank eligibility only and not to a quasi-fiscal subsidy by the central bank.”
Source: Reuters (By Balazs Koranyi, Editing by Jeremy Gaunt)
In Bangkok this week for the year’s first meeting of regional business leaders in the APEC Business Advisory Council one modest sliver of good news brought smiles to a week better marked by anxiety and uncertainty over mainly bad developments that have marked the past six months.
Even the good news, in better times, would have warranted little attention: the World Trade Organisation announced that the Trade Facilitation Agreement (TFA) intended to simplify border procedures so as to boost trade, and reduce costs linked with moving goods around the world, has at last come into force.
The TFA is the only global deal negotiated and agreed in the WTO since it was founded 23 years ago. Pretty much everyone supporting global free trade was celebrating. Hoang Van Dung, the Vietnamese chairman of ABAC, spoke for all when he said: “The TFA will help small as well as large firms, and those from developing countries, to participate more successfully in global markets by reducing red tape, costs and technical barriers to trade.”
But realists in Bangkok and elsewhere acknowledged that the celebration was rather hollow.
The TFA was a crumb on the table of the now-defunct Doha round of global trade negotiations. It was proposed by WTO director General Roberto Azevedo – and endorsed by the world’s trade ministers – in Bali in late 2013 as a single salvageable initiative after more than a decade of fractious and ultimately fruitless efforts to bring global trade rules into the 21st century.
Despite endorsement in Bali, it has taken a further 39 months to persuade the necessary two thirds of the WTO’s 164 members to ratify the agreement, and so bring it into force. On February 22, Rwanda, Oman, Chad and Jordan squeezed the WTO over the line.
Having had so little to celebrate over the past quarter century, Roberto Azevedo can perhaps be forgiven for being effusive: “This is fantastic news. WTO members have shown their commitment to the multilateral trading system. They have followed through on the promises made when this deal was struck just over three years ago. By bringing the deal into force we can now begin the work of turning its benefits into reality.”
There are estimates that the deal can cut trade costs globally by over 14 per cent, and will boost global trade by 2.7 per cent a year by 2030. It will in particular aid developing economies, lifting their exports by over 30 per cent.
Of course, I can’t imagine this “fantastic” news will have excited many in Donald Trump’s White House. No champagne corks popping here, for sure.
Their “America first” mantra leaves little interest in benefits going to traders in the developing world. And in a West Wing where the word “multilateral” is a dirty word, one has to fear that the TFA will join the TPP and NAFTA as Trump targets for early extermination.
But the White House aside, businesses around the world have good reason to celebrate this first modest victory for multilateralism.
No country has developed successfully in modern times without opening its economy to international trade, investment, and the movement of people
In Bangkok, the 63 gathered members of the APEC Business Advisory Council grasped firmly at this encouraging straw: “The global economy has been through a tough period. Trade growth continues to slow,” said Mr Dung: “It is critical we take action wherever we can to remove the grit from the machinery of trade, keep markets open and competitive, and deepen connections. So this new agreement is extremely welcome.”
At a time when developments in the US and the UK have prompted many ordinary voters to question the benefits of free and open trade and investment, ABAC members spent much of the week in Bangkok scrutinising why the clear benefits of trade opening over the past three decades are being so fiercely challenged.
Globally, trade liberalisation has lifted more than a billion people out of poverty over this time. Cooperation in the APEC region over the last 20 years has raised more than 700 million out of poverty in Asia alone, with GDP per capita increasing over 5 times.
“No country has developed successfully in modern times without opening its economy to international trade, investment, and the movement of people,” one ABAC member commented: “But to continue globalisation, its benefits need to be more clearly explained, and broadly shared. The objective must be more socially inclusive growth and less extreme inequality.
“We in business have to do better to demonstrate not just the economic benefits, but also to work with our governments to establish policies that address dislocations and worker skill development.”
As alarming as the ferocity of the challenge to free and open trade has been, equally shocking has been the attack on multilateral and regional trade deals like the TPP and NAFTA, and the sudden love-affair with bilaterally-negotiated trade deals. Ask anyone involved in international business about bilateral trade deals and they will confirm they offer an extremely poor second best to regional or global deals: bilateral deals force businesses to trade by different rules and regulations in every market they enter. This “noodle bowl” muddle adds huge cost, complexity and uncertainty for every business considering international trade – with particularly tough impact on small companies.
Since it is clear that much of the political upswelling against international trade is linked with distress in communities that have been the victims of change, ABAC leaders also committed last week to work with APEC leaders to develop detailed proposals to identify more clearly the people in our economies that are adversely affected by trade-opening, and to develop programs to enable them to “re-skill” for 21st century careers.
However, the awkward reality here is that by far the majority of dislocation is arising not from trade, but from accelerating digital disruption and broader technological change. One high-tech entrepreneur in Bangkok estimated the digital revolution will by 2030 destroy more than 200 million jobs worldwide – but at the same time create 320 million new, higher-value-adding jobs. Perhaps Trump and other global leaders should be giving priority to this challenge in the coming for years. It would without question do more good than getting tough with a few migrant Mexican farm workers.
The rise in world stocks this week to fresh all-time highs drew an eighth straight weekly inflow into equity funds, Bank of America Merrill Lynch said, while bond funds also chalked up their ninth straight weekly inflow.
The $8.5 billion equity fund inflow in the week to February 22 pushed BAML’s “Bull & Bear” indicator deeper into bullish territory and closer to levels that generate a contrarian ‘sell’ signal.
For that to happen, however, investors need to reduce their cash holdings a little further and buy more emerging market and high-yielding assets, BAML said.
MSCI’s benchmark world equity index hit a record high of 447.67 points this week, and is up 5.6 percent so far this year. A gain of that magnitude would be its best quarterly performance in over three years.
The Dow Jones Industrials Average has chalked up 10 consecutive record closing highs for the first time since 1987. This has led some analysts to warn that a sharp correction, if not quite on a scale of the 1987 crash, looms large.
U.S. equity funds drew a net $3 billion inflow and European funds drew inflows for the fifth week in a row, the $1.1 billion inflow being the biggest in over a year, BAML said.
So far this year investors have poured $60.8 billion into equity funds, according to BAML and flows tracker EPFR Global. Some $54.3 billion of that has gone into developed market equity funds.
Bond funds pulled in $7.6 billion in the latest week, the ninth consecutive inflow, BAML said. Half of that went to investment grade corporate bond funds, $1.3 billion to HY funds and $1.2 billion to EM debt funds.
The notable exception was Treasury bond funds, which posted a fourth straight outflow, this time of $900 million.
Source: Reuters (Reporting by Jamie McGeever; Editing by Toby Chopra)
Hedge funds and money managers boosted their bullish wagers on U.S. crude oil to a record high, data showed on Friday, as prices rallied on OPEC’s optimism for greater compliance with its deal with other top global producers to curb output. The speculator group raised its combined futures and options position in two major NYMEX and ICE markets by 21,777 contracts to 443,703 in the week to Feb. 21, U.S. Commodity Futures Trading Commission (CFTC) data showed.
Gross short, or bearish, futures and options positions among money managers fell to the lowest since mid-2014. That brought the net long U.S. crude futures and options positions to the highest on record, based on publicly available data going back to at least 2009, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday. “The buying is supportive but the new record long exposure leaves the market increasingly overbought,” Tim Evans, Citi Futures’ energy futures specialist, said in a note. U.S. oil futures on the New York Mercantile Exchange rallied by about 1.6 percent and averaged $53.43 per barrel during the shortened trading week. Monday was a holiday for U.S. markets for Presidents Day.
OPEC Secretary-General Mohammad Barkindo told an industry conference in London that January data showed conformity from participating OPEC nations with output curbs had been above 90 percent and oil inventories would decline further this year. “All countries involved remain resolute in the determination to achieve a higher level of conformity,” Barkindo said.
Since, the joint OPEC and non-OPEC technical committee reported 86 percent compliance with oil cuts for OPEC and non-OPEC combined for January, according three OPEC sources.
However, swelling U.S. inventories and signs of increased resurgent drilling activity have capped prices.
Crude inventories rose 564,000 barrels in the week to Feb. 17, its seventh straight week of increases, compared with analysts’ expectations for an increase of 3.5 million barrels, the EIA said. [EIA/S] Among refined products, speculators slashed net long futures and options in U.S. gasoline to the lowest in two months. “With the group still net long at 40,969 contracts, there’s potential for this bearish flow to continue,” Evans said. Gasoline inventories have soared in recent weeks as the market grapples with oversupply and demand softened. In Ultra Low Sulfur Diesel (ULSD), money managers boosted their net long positions slightly to 32,955 contracts.
Source: Reuters (Reporting by Devika Krishna Kumar in New York; editing by David Gregorio)
U.S. retail sales rose more than expected in January as households bought electronics and a range of other goods, pointing to sustained domestic demand that should bolster economic growth in the first quarter.
The economy’s improving prospects were also underscored by other data on Wednesday showing consumer prices last month recording their biggest increase in nearly four years and manufacturing output rising steadily. The reports came a day after Federal Reserve Chair Janet Yellen appeared to put an interest rate hike next month on the table.
“The U.S. economy has quite a bit of momentum as the year began,” said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto. “This morning’s reports add a little more impetus for the Fed to move this quarter. Still not our call but it is becoming very interesting.”
The Commerce Department said retail sales increased 0.4 percent last month. December’s retail sales were revised up to show a 1.0 percent rise instead of the previously reported 0.6 percent advance. Sales rose despite motor vehicle purchases posting their biggest drop in 10 months.
Compared to January last year retail sales were up 5.6 percent. Excluding automobiles, gasoline, building materials and food services, retail sales increased 0.4 percent after a similar gain in December. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.
Economists had forecast retail sales ticking up 0.1 percent and core sales gaining 0.3 percent last month.
The dollar rose to a one-month high versus a basket of currencies on the data, while prices for U.S. government bonds fell. U.S. stocks were little changed.
January’s fairly strong retail sales supported views that economic growth will accelerate in the first quarter. The economy grew at a 1.9 percent annualised rate in the fourth quarter. The Atlanta Fed is currently forecasting the economy growing at a 2.7 percent annualised rate in this quarter.
In a separate report, the Labor Department said its Consumer Price Index jumped 0.6 percent last month, the largest increase since February 2013, after gaining 0.3 percent in December. The surge in the CPI reflected increases in gasoline, apparel and motor vehicle prices among others.
In the 12 months through January, the CPI increased 2.5 percent, the biggest year-on-year gain since March 2012. The CPI rose 2.1 percent in the year to December. Inflation is trending higher as prices for energy goods and other commodities rebound as global demand picks up.
The so-called core CPI, which strips out food and energy costs, rose 0.3 percent last month after increasing 0.2 percent in December. That lifted the year-on-year core CPI increase to 2.3 percent in January from December’s 2.2 percent increase.
The Fed has a 2 percent inflation target and tracks an inflation measure which is currently at 1.7 percent. Strengthening domestic demand together with firming inflation and a tightening labour market could allow the Fed to raise interest rates at least twice this year.
Yellen told lawmakers on Tuesday that “waiting too long to remove accommodation would be unwise.” The U.S. central bank has forecast three rate increases this year. The Fed hiked its overnight interest rate last December by 25 basis points to a range of 0.50 percent to 0.75 percent.
A third report from the Fed showed manufacturing production increased 0.2 percent in January after a similar increase in December. Output at mines shot up 2.8 percent, with oil and gas well drilling increasing further.
Retail sales last month were buoyed by a 1.6 percent jump in sales at electronics and appliances stores. That was the biggest rise since June 2015 and followed a 1.1 percent drop in December. Receipts at building material stores increased 0.3 percent.
Sales at clothing stores jumped 1.0 percent, the largest rise in nearly a year. Department store sales climbed 1.2 percent, the biggest increase since December 2015.
Sales at online retailers were unchanged last month after soaring 1.9 percent in December. Receipts at restaurants and bars rose 1.4 percent, while sales at sporting goods and hobby stores shot up 1.8 percent.
Receipts at auto dealerships, however, fell 1.4 percent after vaulting 3.2 percent in December. Last month’s drop was the biggest since March 2016. Motor vehicle prices shot up 0.9 percent, the largest rise since November 2009.
Source: Reuters (Reporting by Lucia Mutikani; Editing by Andrea Ricci)