Friday 26 January 2018

Trump administration backs bills to toughen foreign investment rules

In World Economy News 26/01/2018

The Trump administration supports bipartisan bills in Congress to toughen U.S. foreign investment rules amid growing concern about Chinese efforts to buy U.S. high-tech companies, the White House said in a statement on Wednesday.
The legislation would broaden the government’s power to stop foreign purchases of U.S. firms by strengthening the Committee on Foreign Investment in the United States (CFIUS).
The bills “would achieve the twin aims of protecting national security and preserving the longstanding United States open investment policy,” the White House said.
The bills, introduced in November by Republican Senator John Cornyn and Republican Representative Robert Pittenger, have Republican and Democratic co-sponsors. The Senate Banking Committee will hold a hearing on the topic on Thursday.
The legislation would expand CFIUS’ reach to allow it to review, and potentially reject, smaller investments and add new national security factors for CFIUS to consider. Those factors include whether information about Americans, such as Social Security numbers, would be exposed as part of the transaction or whether the deal would facilitate fraud.
CFIUS already has a reputation for being tough on high-tech deals involving China in particular and has blocked transactions that involve sophisticated semiconductors.
It has become more cautious since President Donald Trump was inaugurated a year ago amid growing political and economic tensions between the United States and China.
The panel has balked at approving a broader range of deals from China since the inauguration, according to lawyers who specialize in representing proposed transactions to the board.

Source: Reuters (Reporting by Eric Beech; Editing by Paul Tait)

Mnuchin says weaker dollar helps U.S. trade in short term

In World Economy News 26/01/2018

U.S. Treasury Secretary Steven Mnuchin said on Thursday that a weaker dollar benefited U.S. trade balances in the short term but that he believed in the long-term strength of the currency.
“I think I’ve been quite consistent on the dollar. Previous secretaries have talked up the dollar. What I’ve said is that first of all we support free trade of the currency,” Mnuchin said at the World Economic Forum in Davos, Switzerland.
However, he added that he was happy with the current level. “Where the dollar is not a concern of mine.”

Source: Reuters (Reporting by Alessandra Galloni and Soyoung Kim in DAVOS; Exditing by Mark Bendeich)

ECB’s Draghi Signals Warning Over Euro’s Surge

In World Economy News 26/01/2018

U.S. Treasury Secretary Steven Mnuchin broke an international agreement that rules out seeking a weaker currency to boost exports, the head of the European Central Bank said Thursday.
Mr. Mnuchin Wednesday said a weak dollar was helpful for trade, sending the euro higher against the U.S. currency. A stronger euro makes the ECB’s task of increasing the inflation rate harder because cheaper imported goods weigh on prices.
In Thursday afternoon trading in Europe, the euro was up 0.9%, passing $1.25 for the first time in more than three years.
In a news conference, ECB President Mario Draghi said some of the euro’s rapid appreciation this year is because of an improved outlook for economic growth.
But he also said some of the currency’s gains have been due to “the use of language that doesn’t reflect the terms of reference that have been agreed.” Mr. Draghi didn’t identify Mr. Mnuchin by name, but appeared to have the U.S. official in mind.
Mr. Draghi said the comments in question breached a longstanding agreement among international policy makers, and reaffirmed as recently as October 2017. He quoted that agreement to the effect that participating nations, including the U.S., pledge to “refrain from competitive devaluations, and will not target our exchange rates for competitive purposes.”
He said Mr. Mnuchin’s comments added to growing worries among the central bank’s policy makers about future relations between the world’s major economies.
“Several members expressed concern,” he said. “This concern was broader than simply the exchange rate. It was about the overall status of international relations right now.”
The international agreement Mr. Draghi cited is intended to prevent the outbreak of so-called “currency wars,” in which countries try to outdo each other in weakening their currencies so as to gain an economic advantage.
“President Draghi objected forcefully to U.S. Treasury Secretary Steve Mnuchin’s comments in Davos this week saying that a weak dollar is good for the U.S.–Draghi emphasized the importance of a mutual commitment against competitive devaluation,” said Bill Adams, an economist at PNC Financial Services Group. “Put simply, Draghi is warning that foreign countries could follow the U.S. in a race to the bottom if the U.S. tries to devalue the dollar.”
The ECB left its policy mix unchanged on Thursday, rejecting an early move to scale back its large monetary stimulus amid lingering concerns over weak inflation and a surging euro.
“The recent volatility in exchange rates represents a source of uncertainty which requires monitoring with regard to its possible implications for the outlook for price stability,” Mr. Draghi said.
In a policy statement, the ECB said it would continue to buy EUR30 billion ($37.2 billion) a month of eurozone bonds through September, “or beyond if necessary,” and that its key interest rates wouldn’t rise “for an extended period of time.”
The world’s No. 2 central bank has started to unwind its easy-money policies as the eurozone economy heats up, following the Federal Reserve on the path toward higher interest rates. But the ECB’s confidence is tempered by concerns about possible economic headwinds, not least from the common currency, which has risen to its highest level against the dollar in more than three years.
The ECB’s caution mimics that of the Bank of Japan, whose Governor Haruhiko Kuroda this week sought to damp market speculation that the bank was about to scale back its stimulus.
The nuances around QE matter to investors because they affect how quickly the ECB might start to raise its key interest rates, which in turn affect a wide range of bond prices and market interest rates.
Major central banks have moved in concert in recent months to unwind their aggressive stimulus policies amid a rare synchronized upswing in global growth. The International Monetary Fund this week raised its forecast for world economic growth in 2018 and 2019, arguing that sweeping U.S. tax cuts were likely to boost the world’s largest economy and its trading partners.
In a nod to the brighter outlook, the ECB halved the pace of its bond purchases this month. But the bank hasn’t yet signaled when QE will end, sparking a dispute within its rate-setting committee as some top officials worry the bank isn’t adapting quickly enough to the booming economy.
Officials are weighing a fresh move early this year to reduce their stimulus, according to the minutes of their December meeting. Specifically, the ECB might soften its pledge to continue QE until inflation reaches its target of just below 2%.
Still, risks remain. Officials worried at their December meeting about a possible repricing in global financial markets–“in particular bond markets, but also equity and corporate credit markets.”
Germany is still without a government, while Italians face national elections in March in which Beppe Grillo’s 5 Star Movement is expected to emerge as the largest party.

Source: Dow Jones

Many in Europe wish to punish the UK for leaving the EU, says Luxembourg finance minister

In World Economy News 26/01/2018

Many in Europe are looking to “punish” the U.K. for voting to leave the European Union, the finance minister of Luxembourg told CNBC.
Speaking at the World Economic Forum (WEF) in Davos, Switzerland, Pierre Gramegna said that those with such an agenda would never admit to it.
“There are many people out there who are trying to punish the United Kingdom without saying it — if you ask them they will deny it,” he said. “Let’s try to be more positive, let’s try to de-dramatize the whole negotiation.”
European negotiators are waiting for clear instructions from their capitals to take to the second phase of the Brexit process, which is expected to begin Monday following a ministerial meeting in Brussels.
The second phase will focus on future trade links and a transitional period. One of the main issues will be the future of the City of London and whether U.K. firms will keep their passport rights or will need extra licenses to serve EU-based customers.
Gramegna called for European negotiators to avoid punishing London and its financial services for Brexit.
“Weakening London as a financial center to make sure it will not be the first financial center in the world anymore is weakening Europe,” Gramegna said.
“Let’s not have London drift into the Atlantic, let’s make sure we have a working relationship with London.”

Source: CNBC

UK’s pre-referendum Brexit forecasts no longer valid: finance ministry

In World Economy News 26/01/2018

The top official at Britain’s finance ministry said his department’s forecasts of a big hit to the economy from Brexit, made shortly before the June 2016 EU membership referendum, were no longer applicable.
Brexit supporters have long criticized the projections as part of a “Project Fear” they say was led by former prime minister David Cameron and his finance minister George Osborne.
The forecasts said that within 15 years Britain’s economy could be between 3.4 and 9.5 percent smaller if it left the EU than if it had stayed in.
Tom Scholar told lawmakers on Wednesday the forecasts were based on an assumption that Britain would immediately start the process of leaving the European Union, and they did not include any stimulus measures for the economy.
In fact, Britain took nine months to launch the Brexit process and the Bank of England pumped in stimulus shortly after the vote. Last November, the government announced measures which were also aimed at helping the economy.
“The third (factor) I would say is that the global economy has recovered much more strongly …than we expected at the time,” Scholar said.
Britain’s economy has withstood the Brexit vote shock better than most private economists expected, but it has lagged behind growth rates achieved in other advanced economies.
Speaking to the Treasury Committee in the lower house of parliament, Scholar also said the forecasts were based on three potential scenarios for Britain’s future relationship outside the EU, but not the one that British Prime Minister Theresa May wants: a tailor-made trade deal with the bloc.
“I don’t think the pre-referendum analysis is useful in the current debate about our attempts to secure a deep and special partnership because that’s a different thing to any of the three scenarios that were illustrated in that paper,” he said.

Source: Reuters (Reporting by William Schomberg; editing by John Stonestreet)

U.S. Jobless Claims Rose Last Week

In World Economy News 26/01/2018

The number of Americans filing applications for new unemployment benefits rose last week, partly reversing the prior week’s sharp decline and continuing a recent trend of gradually rising applications.
Initial jobless claims, a proxy for layoffs across the U.S., increased by 17,000 to a seasonally adjusted 233,000 in the week ended Jan. 20, the Labor Department said Thursday.
Economists surveyed by The Wall Street Journal had expected 237,000 new claims last week.
Previously, jobless claims had risen for four straight weeks at the end of 2017 and into January, but declined steeply in mid-January, breaking that trend. The increasing number of claims resumed last week.
Weekly jobless claims have held below 300,000, viewed by many economists as a healthy level, for almost three years, the longest streak since the 1970s.
The number of claims workers made for longer than a week declined by 28,000 to 1,937,000 in the week ended Jan. 13, which is reported along with last week’s data because continuing claims are released with a one-week lag.
Jobless claims data can be volatile. The four-week moving average, a steadier measure, fell 3,500 to 240,000 last week.
The unemployment rate has been parked at 4.1%, a 17-year low. Recent reports by the Federal Reserve indicate employers across Fed regions have struggled to find workers to fill positions, indicating the labor market could tighten further this as companies compete for workers.

Source: Dow Jones

Trump raises infrastructure investment plan to $1.7 trillion

In World Economy News 25/01/2018

U.S. President Donald Trump said on Wednesday that his long-awaited plan to help rebuild the nation’s infrastructure would result in about $1.7 trillion (£1.2 trillion) in overall investment over the next 10 years, a larger figure than he previously announced.
The plan, which will be detailed in part at next week’s State of the Union address, “will actually probably end up being about $1.7 trillion,” Trump told a gathering of mayors at the White House. Trump previously valued the plan, which is expected to feature a mix of federal and local investment, at $1 trillion.
The administration is expected to ask Congress for $200 billion in federal spending on infrastructure aimed at encouraging more than $1 trillion in state, local and private financing to build and repair the nation’s bridges, highways, waterworks and other infrastructure.
Republican Senator John Thune, who chairs the Commerce Committee, told Reuters in an interview on Tuesday that the big challenge “would be how do you pay for it and the (Trump administration is) talking about spending cuts, which are unspecified.”
Thune said it was probably going to be “tough” to get Democrats to support a deal without the federal government raising additional revenue for improvements.
He said in order to get a bill approved this year, it would need to be moving through both the House of Representatives and Senate by late spring or early summer. Trump will need to make a big push to win approval, Thune added.
Reuters reported last week that the plan involved $100 billion in cost-sharing payments for projects and $50 billion for rural projects, with the remaining $50 billion largely split among “transformative” projects such as high-speed trains, and funds for federal transportation lending projects.
A leaked document released this week, which an administration official confirmed was “largely accurate,” shows that the administration plans to reduce the cost-sharing for projects to no more than 20 percent of the costs from the traditional 80 percent federal share. That would result in a higher overall infrastructure boost if states agree to shoulder more of the costs.
Democrats have criticized that proposal and argued the Trump administration should back more direct federal spending.
The bill will also aim to streamline environmental reviews and it make it easier to build highways and other projects and allow for greater tolling on roadways.

Source: Reuters (Reporting by James Oliphant and David Shepardson; Editing by Lisa Shumaker and Peter Cooney)