Tesla is under pressure to limit spending as it emerges from what Musk called the “most challenging” year in its history. While it succeeded in scaling up output of its Model 3, the company missed analysts’ production targets during the fourth quarter, and it’s had to cut prices to make up for the halving of a U.S. tax credit that’s acted as a buyers’ incentive. The credit is set to drop again in July before going away entirely at the end of the year.
Elon Musk said he’ll cut Tesla Inc.’s workforce by 7 percent, or more than 3,000 jobs, warning that the “road ahead is very difficult” in making electric cars more affordable for the mass market.
“Goldman Sachs should understand the agony and the trauma suffered by the Malaysian people as a result of the 1MDB scandal,” Lim said in the administrative capital of Putrajaya. “An apology is just not sufficient. Not enough. There must be the necessary reparations and compensations.”
An apology from Goldman Sachs Group Inc. doesn’t cut it for Malaysia, which said it may consider a discussion to absolve the bank of blame for its role in the 1MDB scandal for $7.5 billion.
The country filed criminal charges against the lender in December, the first for Goldman, and may discuss dropping those allegations if the bank pays the sum, Finance Minister Lim Guan Eng told reporters on Friday. Units of the bank were accused of making false statements in documents submitted to a local regulator in arranging $6.5 billion bond offers for troubled state fund 1MDB.
After a prolonged summer drought, the bustling traffic at one of the shallowest points on the Rhine ground to a halt for nearly a month late last year, choking off a critical transport artery. The impact damped Germany’s industrial machine, slowing economic growth in the third and fourth quarters.
“You can see the water levels are lower each year,” said Kilps, who added extra flotation equipment to the 150-ton boat during the stoppage to enable it to finally cross the river again. “It’s scary to watch the climate changing.”
With its source high in the Swiss Alps, the Rhine snakes 800 miles through the industrial zones of Switzerland, Germany and the Netherlands before emptying into the sea at Rotterdam, Europe’s busiest port. It serves as a key conduit for manufacturers such as Daimler AG, Robert Bosch GmbH and Bayer AG.
Constraints on the Rhine cost BASF SE around 250 million euros ($285 million) by pushing the chemical maker to use more expensive transport options. In a recent newspaper interview, BASF Chief Executive Officer Martin Brudermueller called for major infrastructure investments such as locks and dams that can release water to ensure shipping lanes remain open.
“The Alps are warming at an even faster rate as snow and ice melts,” Hagg said. “A warming climate means that incidents like the low river levels this summer are more likely to occur.”
It’s a grim week in global growth when the brighter take is that Italy’s more in stagnation than recession. Elsewhere, the tone is almost universally downbeat, with an OECD gauge affirming a deep sluggishness in the world’s major economies. Outside of sour trade data, China also saw its first car sales dip three decades, adding to a slowdown that has the government cutting taxes to nudge consumption. Germany barely dodged a recession at the end of 2018, and Mario Draghi sees the weakness across Europe even as he doesn’t want to apply the R-word. Economic policy uncertainty is at a record high globally, and the likes of Brexit and the U.S. government shutdown are adding dark clouds on the horizon. On a hopeful note, here’s a case for a pleasant surprise in the Philippines economy. And here’s a Bloomberg Economics analysis to help you read the tea leaves on global growth.
Esther George won the week for monetary policy doves, as the famously hawkish regional Fed chief called for patience on raising interest rates. That marked just the latest sign that 2019 will be a year of caution at central banks, outlined in our quarterly decision guide. China’s quietly cutting borrowing costs while holding rates. The Bank of Japan probably will cut its inflation forecast on cheaper oil, and here’s a guide to its language on the yen. Brexit chaos could delay action at the Bank of England, and markets already were coming around to a more dovish view there. Turkey, Indonesia and South Africa all kept rates on hold.
The index of small-cap stocks has gained more than 8 percent year to date — a far cry from its 2018 performance, when the index saw its worst annual loss since the financial crisis.
But the recent strength may just be a head fake. According to TradingAnalysis.com founder Todd Gordon and Strategic Wealth Partners’ Mark Tepper, investors should look elsewhere for value.
Smaller companies are typically more susceptible to economic cycles. They usually hold more debt than their large-cap peers, which means they are especially sensitive to factors like rising rates and wage inflation.
Since Tepper believes we could be nearing the end of this historic bull run, he thinks Russell 2000 companies might have a tough road ahead.
“Large caps typically outperform small caps late cycle,” he said. “When the economy slows and eventually contracts, those companies with high debt levels are going to get hit the hardest. Cash flow slows, rates go up, and that’s a recipe for trouble. Beyond that, wages are going up and that’s going to eat into margins.”
The growing likelihood of even a limited trade deal with the United States combined with a ramp-up in Chinese stimulus are jointly making some experts more optimistic about the 2019 prospects for the world’s second-largest economy.
The atmosphere, however, has changed after a 90-day truce began early in December. Negotiations in Beijing earlier this month were mutually hailed and more talks are in store. And the U.S. is reportedly even considering lifting tariffs to reach a deal. That is all helping create a positive atmosphere for some kind of agreement.
“The point is that both sides are now under a lot of pressure to get a deal done,” Stefan Hofer, chief investment strategist at LGT Bank in Hong Kong, told reporters on Tuesday, calling it “just something that has to happen.”
LGT’s base forecast is for a deal by the middle of 2019, but Hofer said now is the time to get into Chinese markets.
“I think it’s perfectly okay for investors to take on China exposure now in anticipation of that,” he said.
Political risk consultancy Eurasia Group said in a Thursday note it sees “increasing signs of momentum towards some type of interim deal” within this year. In its view, that’ll be driven mostly by U.S. President Donald Trump’s wish to calm markets and have a win to take into next year’s expected re-election bid.
In a meeting of top advisers at the White House on Tuesday, the sources, who declined to be identified since the meeting was not public, said participants discussed aspects of a potential infrastructure plan and whether to include details of it in Trump’s State of the Union address scheduled for later this month.
About 20 officials took part in the more than hour-long meeting with Trump, including Vice President Mike Pence, White House senior adviser Ivanka Trump, acting Chief of Staff Mick Mulvaney, Treasury Secretary Steven Mnuchin and Transportation Secretary Elaine Chao, the sources said.
They discussed how to incorporate into the plan funding for a next-generation wireless network, known as 5G, and potentially using the plan to modernize the U.S. air traffic control system, the people said. It followed a senior staff-level meeting on infrastructure earlier this month.
A White House official confirmed the meeting took place but declined to comment further.
The administration is considering a 13-year program but has not settled on key issues, including whether it will propose new ways to pay for increased spending.
U.S. oil production growth combined with a slowing global economy will put oil prices under downward pressure in 2019, challenging OPEC’s resolve to support the market with output cuts, the International Energy Agency said on Friday.
The IEA, which coordinates the energy policies of industrial nations, said it was keeping its estimate of oil demand growth for this year unchanged at 1.4 million barrels per day, close to 2018 levels.
“The impact of higher oil prices in 2018 is fading, which will help offset lower economic growth,” the Paris-based IEA said in its monthly report.
Soybean shipments offloaded in China this year are down about 37 percent from the first two weeks of 2018, according to tanker-tracking firm ClipperData. To be sure, a couple weeks of data represent a small sample size, but the drop is very concerning in light of market conditions and trade tensions, says Ken Smithmier, director of research for agricultural markets at ClipperData.
The ongoing U.S.-China trade dispute is now being complicated by an outbreak of African swine flu that threatens to suppress Chinese demand for soy meal, a common hog feed, for months to come. Along with soft auto sales and dismal manufacturing data, China’s remarkably weak soybean imports add more evidence of a slowdown in the world’s second-largest economy.
China, the world’s top soybean consumer, has turned to Brazil and other exporters for its supplies since slapping tariffs on U.S.-origin soybeans. The trade tension has weighed on prices, with soybeans losing more than $2.50 per bushel — roughly a quarter of their value — between the 2017 peak in March and the trough in September.
As Beijing and Washington endeavor to end the dispute, prices have rallied about 80 cents. That essentially signals to farmers that they shouldn’t cede too much acreage to other crops at the expense of soybeans, says Smithmier. However, he believes that’s a false signal and prices will soon correct.
(Can We Believe any Data coming out of OPEC?)
OPEC slashed production in December, delivering a bullish signal to the market one month before the producer group officially began a fresh round of output cuts.
Last month, OPEC struck a deal with Russia and nine other nations to keep 1.2 million barrels per day off the market starting in January. The so-called OPEC+ alliance is trying to prevent another price-crushing oil glut. The cost of crude collapsed in the final quarter of 2018, stirring memories of the punishing 2014-2016 downturn.
The 14-nation OPEC got a jump on the agreement in December. Oil supplies from OPEC nations plunged by 751,000 barrels per day to nearly 31.6 million bpd, according to independent figures cited by OPEC in its monthly report.
Top oil exporter Saudi Arabia was the driving force behind the headline decline. The kingdom’s output plunged by 468,000 bpd to just over 10.5 million bpd last month, independent figures show. Data supplied directly by Riyadh show a 450,000 bpd drop to slightly more than 10.6 million bpd.
The pullback in OPEC production was deepened by supply disruptions in Libya and Iran.
Output in Libya fell by 172,000 bpd to 928,000 bpd in December, after a group of armed protesters and aggrieved workers took over the country’s largest oil field.
In Iran, production dropped by another 159,000 bpd to just under 2.8 million bpd, as the nation enters a second month under wide-ranging U.S. sanctions. The Islamic Republic has gone from being OPEC’s third biggest producer to its fifth largest, falling behind the United Arab Emirates and Kuwait in December.
Excluding Qatar, OPEC forecasts demand for the group’s oil will average 30.8 million bpd in 2019, about 900,000 bpd lower than last year. Demand for OPEC’s oil fell by about 1.2 million bpd last year, the group says.
“U.S. production growth, notably shale, is set to continue growing at a robust rate,” said Ehsan Khoman, head of Middle East and North Africa research and strategy at MUFG Bank Ltd. in Dubai. “This puts OPEC+ in a spot of bother, as the more they act to support prices, the more challenging it is to gain market share.”
In America, crude production climbed by 200,000 barrels last week to 11.9 million barrels a day, the highest level in weekly figures compiled by the Energy Information Administration since 1983. While nationwide inventories dropped for a sixth time in seven weeks to the lowest since early November, stockpiles of gasoline and distillates rose by more than twice the amount estimated in a Bloomberg survey -- a troubling sign for crude demand.
“A significant Chinese slowdown may already be unfolding,” Harvard University economics professor Kenneth Rogoff said in a recent commentary. A resumption of Sino-U.S trade talks has increased optimism among some analysts that Washington could agree to a further suspension of planned tariff hikes on Chinese goods, originally slated to take effect this month.
China’s economic growth is expected to slow to 6.3 percent this year, which would be the weakest in 29 years, from an expected 6.6 percent in 2018, according to median forecast of 85 economists Reuters polled. The economy expanded 6.9 percent in 2017.
However, a comprehensive agreement to end the dispute is seen as unlikely by the negotiating deadline of early March, given the number of highly divisive and politically sensitive issues on the table.
Even if the two sides are able to reach a durable trade deal, analysts said it would offer only modest relief for China’s economy unless Beijing can rekindle weak domestic investment and demand.
“The PBOC is increasingly using liquidity management, instead of cuts to benchmark interest rates, to reduce interbank funding costs, guide bond yields lower and give banks a bigger profit margin so that they can offer cheaper loans to customers,” said Ding Shuang, chief economist of Greater China & North Asia at Standard Chartered Bank Ltd in Hong Kong.
And that won’t change soon, according to Ding, who interprets the comments made by a PBOC official on Tuesday as implying that any cut to interest rates isn’t likely in the short term.
The PBOC has taken a series of steps in recent weeks on that front:
The strategy has been effective. The cost for banks to borrow from each other through 7-day repurchase agreements has been below the cost of the PBOC’s 7-day reverse repo for most of January, only picking up this week as companies withdrew money to pay taxes.
“They have every justification if they wish to not proceed in lockstep with their earlier increases but rather take a pause, and wait and see. It would not necessarily signal an end to rate increases, it would simply be a pause to evaluate.”
The Federal Reserve has plenty of reasons to pause its interest-rate increases in March to take stock of the economy, according to former Federal Reserve Bank of Atlanta President Dennis Lockhart.
“Monetary policy is about the real economy, not the financial economy. So the FOMC will do what it thinks is best for Main Street,” he said. “From time to time that may seem out of alignment with what markets are signaling. That’s very much the case today.”
The People’s Bank of China pumped in a net 560 billion yuan ($83 billion) into the financial system on Wednesday, the biggest one-day addition on record. The PBOC is offering reverse repos to maintain sufficient liquidity in the banking system during the peak season for tax payments, according to a central bank statement.
Funding costs have been rising, with the seven-day interbank repurchase rate climbing to about 2.65 percent from 2.21 percent on Jan. 8. Credit growth exceeded expectations in December, data showed Tuesday, after a raft of dismal economic numbers, including the biggest drop in the nation’s exports and imports since 2016.
(Parliament’s confidence vote in May’s government at 7 p.m.)
“What the government wants to do is first of all to ensure that we deliver on the result of the referendum,” May said. “We want to do it in a way that ensures we respect the votes of those who voted to leave in that referendum. That means ending free movement, it means getting a fairer deal for farmers and fishermen, it means opening up new opportunities to trade with the rest of the world.”
It’s that last bit on trade that would seem to rule out a customs union -- though there is some wiggle room.
Labour MPs behind a letter this morning calling for a second referendum on Brexit insist that the 71 who signed represent more than 100 who back a change in party policy to campaign for a "People’s Vote".
There are 24, including frontbenchers Clive Lewis and Marsha De Cordova, who are already on record backing a second plebiscite but do not feature on the list of signatories, according to Gez Sagar, the veteran Labour press officer handling communications for the group. Others are not yet ready to go public.
“Removing the government and pushing for a general election may prove impossible, so we must join trade unions, our members and a majority of our constituents by then unequivocally backing the only option to help move our country forward,” the MPs said in a statement. “A public vote, with the option to stay and keep the deal that we have.”
Meanwhile former Prime Minister David Cameron -- remember him? -- told the BBC on Wednesday he’s “sure” his successor Theresa May will win this evening’s vote. He said she has his support in trying to reach a partnership agreement with the EU.
Mark Carney said the Bank of England is in discussions with the U.K. Treasury about the powers it needs to smooth any financial ructions if the country leaves the European Union without a deal -- though he also stressed that market movements suggest a no-deal Brexit unlikely.
The EU does have some ammunition left to try to help May sell the deal -- and that could include beefing up the section of the agreement dealing with future relations, according to diplomats. That’s the non-binding part of the package that was kept intentionally vague to allow all sides of the Brexit debate in the U.K. to back it. It had the opposite effect: it didn’t please anyone.
U.K. inflation fell to its lowest rate in almost two years in December as the cost of filling up a vehicle plunged (-4.4%).
Consumer prices rose 2.1 (down from 2.3%) percent from a year earlier, the least since January 2017, the Office for National Statistics said on Wednesday. However, core inflation accelerated to 1.9 percent, boosted by the price of hotel accommodation.
“Inflation is set for a period below target this year said Dan Hanson of Bloomberg Economic.”. “In the near term that’s likely to stem from weaker sterling oil prices, but further out it should reflect the impact of news around Brexit. We continue to think there will be a deal and expect sterling to rally, though the timing of any lift in the currency has become more uncertain.”
“It was like hitting the brakes when you’re going over the speed limit,” Redfin Chief Economist Daryl Fairweather said of the slowdown. “You can’t have prices growing faster than wages year after year.”
Home sales in the U.S. slumped in December, while prices inched up slightly, marking the smallest annual increase since the end of the last housing crash in 2012, according to data from brokerage Redfin.
The median home price rose to $289,800 in December, a gain of 1.2 percent, the slowest monthly pace since March 2012. Sales dropped by almost 11 percent, the biggest decline for any month since 2016, Redfin said. Previously hot metropolitan areas are cooling fast. Prices dropped 7.3 percent in San Jose, California.
The property market, which was surging for years as buyers fought for a limited supply of homes, is softening as inventories start to increase and buyers take more time. The jump in mortgage rates last year added to housing’s underlying affordability problem, putting an end to the era of rampant bidding wars.
Mortgage demand continues to recover sharply, after ending last year in the basement.
Total mortgage application volume rose 13.5 percent last week, compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.
That is its highest level since February 2018 and came after a 23 percent jump the previous week. Volume was just 0.5 percent lower compared with the same week one year ago.
Refinance demand drove the gains, with those applications rising 19 percent for the week to the highest level since last March. Volume was 11 percent lower compared with one year ago, when mortgage rates were 42 basis points lower.
Using the Anti-deficiency Act of 1870, the administration has ordered thousands of furloughed federal employees back to work without pay to inspect planes, issue tax refunds, monitor food safety and facilitate the sale of offshore oil drilling rights.
The efforts in recent days illustrate how President Donald Trump is trying to limit the impact of the partial government shutdown and shield favored industries as the funding impasse thwarts the deployment of new aircraft, stock offerings and even craft beers. The Obama administration took the opposite approach in 2013 by erecting barricades around open-air monuments and largely closing national parks -- then leveraging public anger to blame Republicans for halted government services.
The 149-year-old Anti-deficiency law bars agencies from spending money Congress hasn’t given to them, with only limited exceptions for “emergencies involving the safety of human life or the protection of property.”
The responsibility for prosecuting violations of the 1870 Anti-deficiency Act falls to the Justice Department -- and no one’s ever been hauled to court to account for flouting the law. It’s not clear if anyone else would have standing to challenge agency spending and activities that continue amid a shutdown.
Executives at the major U.S. automakers are pressing the Trump administration and California to agree on standards for fuel efficiency and carbon emissions through 2025, as risks increase that a deadline for setting national standards will pass without a deal.
Automakers are already entering the time frame when decisions should be made about what engines and fuel-saving technology, such as hybrids or fully electric cars, will be in use in 2021 and beyond, executives said.
In August, the Trump administration proposed freezing fuel efficiency requirements at 2020 levels through 2025 and stripping California of the ability to impose stricter rules. The administration may also eliminate compliance credits that automakers get for making electric vehicles.
The United States and Britain have conducted their first joint naval drills in the disputed South China Sea since China built island bases there, the two navies said on Wednesday, as Washington seeks help from allies to keep pressure on Beijing.
A U.S. Navy guided missile destroyer the USS McCampbell, which is based in Japan, and a Royal Navy frigate, HMS Argyll, which is on a tour of Asia, conducted communication drills and other exercises from Friday to Wednesday “to address common security priorities”, the U.S. Navy said in a press release.
“There’s no record in recent history of operations together, specifically in the South China Sea,” a U.S. Navy spokesman said.
"At the moment the room for monetary policies is limited, and fiscal policies such as tax cuts are the crucial tool," said Cui Li, head of macro research at CCB International Holdings Ltd. in Hong Kong. The high leverage and property prices have limited the chances of massive monetary stimulus, she said. "But as a pro-growth measure, tax cuts will take effects at a slower pace compared to infrastructure binges," she said.
China’s government is turning increasingly to tax cuts as the first line of defense against a slowing economy, as credit data released Tuesday showed some vindication of its gradual stimulus strategy.
Zhu Hexin, deputy governor of the People’s Bank of China, Xu Hongcai, assistant minister of the Ministry of Finance, and Lian Weiliang, vice chairman of the National Development and Reform Commission, briefed reporters on the policy changes Tuesday in Beijing, and also pledged to support consumption of cars and household goods. Chinese vehicle sales fell for the first time in 28 years, data released Monday showed.
Xu said that the government would allow local governments to issue more special bonds in 2019 compared to 2018 to ensure continuous construction of ongoing infrastructure projects, but that this doesn’t mean weaker oversight.
“Tax reduction is almost the only way to boost personal consumption and private businesses" which are the main worries in the current slowdown, said Wang Jian, a Shanghai-based economist at Shenwan Hongyuan Group Co. "The government is very reluctant to go back to the big stimulus, and relaxing property policy is unlikely."
The government “has grasped the problem” after years of over-investment led to low efficiency and surging debts,” JP Morgan economists led by Zhu Haibin wrote in a report. The impact on growth could be modest though, they wrote as more vigorous tax collection can dampen the benefit and the transmission of tax cuts to the economy is uncertain.
In all, the reductions may boost gross domestic product growth by 0.46 percentage point, the economists said. The world’s second-largest economy is being hit by a confluence of slowing global growth and by uncertainty linked to the trade war -- factors that are expected to linger in the near term, at least.
China asked some state-run enterprises to avoid business trips to the U.S. and its allies and to take extra precautions to protect their devices if they need to travel, according to people familiar with the request.
In recent weeks, the State-Owned Assets Supervision and Administration Commission -- a regulatory body that oversees about 100 government-run companies -- has told some firms to only take secure, company-issued laptops meant for overseas use if traveling is necessary, the people said. They said the warning extended to the other countries in the Five Eyes intelligence-sharing pact: the U.K., Canada, Australia and New Zealand.
The order also said that employees should have the company verify which files they are carrying on any trip and only store them on secure USB flash drives, two people familiar with the warning said separately, adding that SASAC didn’t specify how long the travel rules will apply. The commission didn’t respond to a fax requesting comment.
(Big Win for the “Guy on the Corner”)
The U.S. Justice Department now says federal law bars all internet gambling, reversing its position from 2011 that only sports betting is prohibited under a law passed 50 years earlier.
The reversal was prompted by the department’s criminal division, which prosecutes illegal gambling. The opinion issued about seven years ago that the 1961 Wire Act only banned sports gambling was a misinterpretation of the statute, according to a 23-page opinion by the department’s Office of Legal Counsel dated Nov. 2 and made public Monday.
“It’s still our view that we’re not headed for recession in any of the major economies,” Goldman’s Peter Oppenheimer told CNBC’s Annette Weisbach at the Goldman Sachs Global Strategy Conference in Frankfurt.
“At the end of last year, there was a particularly sharp downgrade in expectations for the U.S. and while there has been a big tightening of policy and financial conditions in the U.S. … We don’t see a recession, but we do see a pretty sharp slowdown,” he said, adding that markets had “got too far into pricing a deeper downturn than we expect.”
Oppenheimer’s comments come after general pessimism among market participants in the U.S. over where the market is heading amid rising interest rates from the U.S. Federal Reserve and geopolitical tensions, especially between the U.S. and China.
A survey of 500 U.S. institutional investors by Natixis in December showed that the majority felt that the longest bull market in history will come to an end in 2019. Forty-one percent of those surveyed said they would be reducing allocations to U.S. equities.
The growth outlook for 2019 is also beset with trade concerns, a slowdown in China, Brexit and political uncertainty in Europe making forecasts for the global economy tricky.
“We do not expect a minus in the fourth quarter, but see signs of a slight recovery,” said Tanja Mucha, who helps compile GDP figures at the statistics office. “We expect a small plus,” she added, cautioning that the estimate is preliminary and based on only about half the information for the quarter.
Germany’s economy narrowly avoided a recession at the end of 2018 after a slump in industry raised concerns over Europe’s growth engine. There was a “slight” increase in gross domestic product in the three months through December, according to the Federal Statistics Office, which will publish official figures next month. But the quarter rounded out a year in which overall growth was the weakest since 2013.
Commuters inching through rush-hour traffic in the Holland Tunnel between Lower Manhattan and New Jersey don’t know it, but a technology likely to be the future of communication is being tested right outside their car windows. Running through the tunnel is a fiber-optic cable that harnesses the power of quantum mechanics to protect critical banking data from potential spies.
The cable’s trick is a technology called quantum key distribution, or QKD. Any half-decent intelligence agency can physically tap normal fiber optics and intercept whatever messages the networks are carrying: They bend the cable with a small clamp, then use a specialized piece of hardware to split the beam of light that carries digital ones and zeros through the line. The people communicating have no way of knowing someone is eavesdropping, because they’re still getting their messages without any perceptible delay.
QKD solves this problem by taking advantage of the quantum physics notion that light—normally thought of as a wave—can also behave like a particle. At each end of the fiber-optic line, QKD systems, which from the outside look like the generic black-box servers you might find in any data center, use lasers to fire data in weak pulses of light, each just a little bigger than a single photon. If any of the pulses’ paths are interrupted and they don’t arrive at the endpoint at the expected nanosecond, the sender and receiver know their communication has been compromised.
China denounced Canada on Tuesday for “irresponsible” remarks after Canadian Prime Minister Justin Trudeau accused it of “arbitrarily” sentencing a Canadian to death for drug smuggling, aggravating already icy relations.
Monday’s death sentence for Canadian Robert Schellenberg for smuggling 222 kg of methamphetamines has become the latest strain on ties.
“The remarks by the relevant Canadian person lack the most basic awareness of the legal system,” Hua said.
Taking Canada to task for issuing an updated travel advisory warning its citizens about the risk of arbitrary enforcement of laws in China, Hua said that Canada should instead remind its people to not engage in drug smuggling there.
“We urge the Canadian side to respect the rule of law, respect China’s legal sovereignty, correct its mistakes, and stop making irresponsible remarks,” Hua said.
PG&E Corp’s (PCG.N) chances of emerging from bankruptcy proceedings hinge in part on an arcane California legal rule that threatens to keep the utility owner perpetually on the hook for liabilities from catastrophic wildfires even beyond the more than $30 billion the company expects to face from recent blazes.
The doctrine, known as “inverse condemnation,” exposes California utilities to liabilities from wildfires regardless of their negligence, as long as their equipment is involved.
“The bad trade data will quite likely increase the pressure on China to achieve a deal, or at least a suspension of the U.S. tariff hikes,” said Louis Kuijs, chief Asia economist at Oxford Economics in Hong Kong. “At the same time, the U.S. side also seems to be under more pressure to de-escalate tension in terms of news on the economy and financial markets than a few months ago.”
China’s exports slumped in December as a rush of orders to beat expected tariffs showed signs of fading and as domestic buyers succumbed to a worsening economic outlook.
The worse than expected figures, with exports falling 4.4 percent in December from a year earlier, set a grim domestic backdrop for China’s negotiators as they seek a deal to end the stand-off with the Trump administration. The fall in exports was the worst result since 2016 in dollar terms while imports slumped 7.6 percent, also the worst reading since 2016 and hinting at softening demand at home.
At the same time, China’s overall trade surplus with the U.S. hit a record in 2018, underscoring the political imperative to cut a deal ahead of a March 1 deadline after which U.S. President Donald Trump has threatened to impose additional tariffs on Chinese goods.
“Global inflation will remain low enough for policy tightening to remain gradual, so the Fed could hike twice,” Tan said at a conference Monday. “And in this context, actually, most of Asia policy tightening is done -- in fact, China is in easing mode.”
An expanding U.S. economy and low recession risk may provide opportunities for the Fed to keep ratcheting up borrowing costs, said Min Lan Tan, head of the chief investment office for Asia Pacific in Singapore. Still, that’s unlikely to spur many Asian central banks to adopt a similar pace of tightening, after policy makers from Indonesia to India boosted rates last year to combat routs sparked by four Fed hikes, rising Treasury yields and a stronger dollar.
UBS isn’t the only firm to say markets may be too aggressive in dismissing the likelihood of any hikes from the Fed this year. JPMorgan Chase & Co. and Bank of America Corp. still see two increases, while Loomis Sayles & Co. says the U.S. central bank may tighten monetary policy once.
Although the median projection of Fed officials is for two quarter-point increases in 2019, fed fund futures currently don’t even price in one.
“You could classify this as a car recession,” said Jeff Schuster, senior vice president of forecasting at LMC Automotive.
Sales of the passenger-car body style that’s dominated the industry since the Model T will sink to 21.5 percent of the U.S. market by 2025, according to researchers at LMC Automotive, relegating sedans to fringe products. That leaves automakers with excess factory capacity that can turn out about 3 million more vehicles than buyers want. And overcapacity is precisely what spurred losses the last time a recession wracked the industry.
The overcapacity plaguing U.S. automakers is the equivalent of 10 excess plants, which would account for at least 20,000 jobs directly, and thousands more as it ripples through the suppliers and support services to the massive industry. “GM has taken some actions, but they still have some well-underutilized plants,” Schuster said. “So we may not be done with this yet.”
The UAW has sued GM over its plant closings and is girding for a big fight at the bargaining table this year as it negotiates new contracts with U.S. automakers that have begun behaving like the good times are already in the rear-view mirror.
“It’s a very bizarre environment right now because the general economic conditions are still quite favorable,” Schuster said. “But it feels like we’re going back to that” dark period a decade ago.
“You had two quick, upward movements in gas prices in the 2000s that were like a one-two punch,” said Wakefield, “and it was like a dog whistle went off, and you couldn’t sell” SUVs. His firm helped guide GM through its 2009 bankruptcy. “It felt like gas prices would go up and stay high,” he recalled.
But now the market has flipped back, thanks to consistently low gas prices, and much of Detroit is once again building too many of the wrong products.
“It’s always unfortunate when there are large layoffs,” Vogel said in an interview Sunday. “We’re in touch with SpaceX and we’re to provide transitional services to impacted employees. There are a lot of aerospace companies in the Los Angeles area. We’re ready to help people.”
The vast majority of Space Exploration Technologies Corp.’s more than 6,000 employees are employed at its headquarters and rocket factory in Hawthorne, California, and hundreds of others are based in Seattle, Florida, Washington, D.C. and Texas. Some 577 positions will be cut in Hawthorne, according to Jan Vogel, executive director of the South Bay Workforce Investment Board.
Those cut include production managers, avionics technicians, machinists, inventory specialists and propulsion technicians.
SpaceX flew a record 21 missions in 2018 for customers including commercial satellite operators, NASA and the U.S. military. But the market size for launches is finite, and SpaceX President and Chief Operating Officer Gwynne Shotwell has warned there might be a slowdown in orders from the geo-telecommunications industry.
“Next year, you won’t see as many launches as you see in 2018,” Shotwell said in an interview with CNBC last May. “2019 is a lower-cadence year.”
“Starting the long overdue pullout from Syria while hitting the little remaining ISIS territorial caliphate hard, and from many directions,” he said on Twitter late Sunday. “Will attack again from existing nearby base if it reforms. Will devastate Turkey economically if they hit Kurds. Create 20 mile safe zone....”
Turkish Foreign Minister Mevlut Cavusoglu responded, saying that nothing could be achieved with economic threats and that partner nations shouldn’t communicate over social media, Reuters reported Monday. The minister added that Trump’s Syria tweets stemmed from domestic politics.
American support for Kurdish militias in Syria has been a major thorn in relations between Washington and Ankara, as the latter views the Kurds as terrorists and a threat to their security.
The militias, known as the Kurdish People’s Protection Units (YPG), are the armed wing of the Democratic Union Party (PYD), an offshoot of the designated terrorist group called the Kurdistan Workers’ Party, which has carried out a decades-long insurgency against the Turkish state. They are also America’s primary partners on the ground in Syria: The Pentagon has been supplying the YPG with weaponry, air support and training to battle IS since 2015, and the militias have suffered thousands of casualties fighting for the U.S.-led coalition.
Following a torrent of domestic and international criticism for what many called an abandonment of its partners, Trump administration officials last week framed the withdrawal of the roughly 2,000 U.S. troops deployed in Syria as contingent on a guarantee of Turkish non-aggression and protection for the Kurds.
Turkey’s politicians, including its President Recep Tayyip Erdogan, have flatly rejected the American efforts.
“What if we found ourselves in a situation where Parliament tried to take the U.K. out of the EU in opposition to a remain vote? People’s faith in the democratic process and their politicians would suffer catastrophic harm,” May will say in a speech in the city of Stoke-on-Trent on Monday, according to extracts released by her office. “We all have a duty to implement the result of the referendum.”
Her choice of Stoke is significant. The city in central England, 135 miles (217 kilometers) north of Parliament in London and once the heart of the global pottery industry, voted more emphatically to leave the EU than anywhere else in the U.K. in the 2016 referendum.
In a speech on Monday, May will warn there’s now more chance of members of Parliament blocking Brexit than of the no-deal outcome preferred by many euroskeptic Tories who want a clean break from the EU. Thwarting Brexit would be a betrayal of millions of voters who opted to leave the bloc in 2016, she will say.
May has 24 hours to save a deal that’s taken almost two years to negotiate but the task looks virtually hopeless. The premier appears no closer to getting the backing she needs than she was in December, when the vote was dramatically pulled when it became clear the government was heading for a heavy defeat. The question now is what she should do next.
China plans to set a lower economic growth target of 6-6.5 percent in 2019 compared with last year’s target of “around” 6.5 percent, policy sources told Reuters, as Beijing gears up to cope with higher U.S. tariffs and weakening domestic demand.
The proposed target, to be unveiled at the annual parliamentary session in March, was endorsed by top leaders at the annual closed-door Central Economic Work Conference in mid-December, according to four sources with knowledge of the meeting’s outcome.
“It’s very difficult for growth to exceed 6.5 percent (this year), and there could be trouble if growth dips below 6 percent,” said one source who requested anonymity due to the sensitivity of the matter.
He added that there are “clear signs” that China’s economy is slowing in the short term, and there may be more dragging on the nation as it looks to transition its economic model from one led by exportation to a more consumption-driven approach. Adding the tariff battle between the two largest economies just means growth will be “a bit more difficult” for Beijing, he noted.
The Chinese economy is a bigger worry right now than the U.S. economy, according to an investments expert at a private bank.
Speaking to CNBC on Friday, Felix Brill, the head of investment solutions at Liechtenstein-based VP Bank, said investors should expect more market volatility due to the ongoing trade war negotiations between Washington and Beijing. Still, he ultimately expressed optimism that China’s leaders will keep their economy together.
Analysts surveyed by Bloomberg over the past week see a median 25 percent chance of a slump in the next 12 months, up from 20 percent in the December survey. The Federal Reserve is now projected to keep interest rates steady in the first quarter, instead of raising them, before two increases total this year -- down from four moves in 2018.
The median projection for 2019 economic growth edged down to 2.5 percent following 2.9 percent in 2018 as the boost from fiscal stimulus fades. Growth is still expected to be buoyed by a strong jobs market, rising wages and some lingering effects of tax cuts. If the expansion that began in 2009 lasts until July, it would mark 10 years and become the country’s longest on record.
It’s Day 21 of the partial government shutdown. That ties the record for a standoff set in the 1995-96 budget battle between President Bill Clinton and House Speaker Newt Gingrich.
We are now seeing a rash of analyst notes warning that this will soon start to affect different businesses.
American Airlines shares fell Thursday because of lower revenue guidance and weaker-than-expected domestic performance in December. And Cowen warned about the effect of the shutdown on airlines.
Of particular concern is what will happen to lower-income people and tax refunds. Macquarie noted the potential effect on retailers:
“Today is a primer in case tax refunds are delayed despite what the White House has to say about tax refund precedent when the government is shutdown. If the government remains shut down going into earnings — we may hear some conservative commentary about [quarter-to-date] comp trends from the retailers. Ultimately, the government will reopen and checks will be sent out but it may happen later in the first quarter of 2019.”
BMO Capital also weighed in on what the shutdown means for stores that cater to lower-income consumers, particularly the dollar stores:
“Prolonged government shutdowns jeopardize food stamps and other benefits that may harm low income consumers. Both dollar store companies see significant sales from lower income consumers and ~5% of sales directly from SNAP benefits for food,” BMO wrote. “This is in addition to any other forms of assistance that these consumers may receive (healthcare benefits, government paychecks, etc.) and the potential for delayed tax returns which may also be impacted by the shutdown. Given that the government is currently shutdown and there is the potential for future gridlock given the split in control of the government, we see a risk that both dollar stores could face a sales headwind if this continues.”
Defense contractors are also being affected. Moody’s warned on Thursday that “defense services contractors that derive a significant portion of their work from agencies that have not been funded, such as NASA and the State Department, are likely to face disruption. These contractors will accrue unbilled receivables if they keep working or will lose revenue if they halt projects.”
Others have longer-term concerns. Here is Macquarie on the shutdown and what it mean for infrastructure projects.
(Shouldn’t every discussion on raising taxes start with shrinking government?)
The tax furor triggered by Rep. Alexandria Ocasio-Cortez has opened debate on a core question for all Democrats: Where should government get more money?
The top tax rate stood above 90 percent throughout the 1950s. But through deductions and tax avoidance, “taxes on the rich were not that much higher” then, the conservative Tax Foundation noted in a 2017 article.
The top rate remained 70 percent as late as 1981, the first year of Ronald Reagan’s presidency. The most affluent 1 percent paid a far lower average rate of 30.5 percent, however, according to a Tax Policy Center analysis. By 1989, when Reagan left office, the top rate had been slashed to 28 percent but their average rate dropped only slightly to 27.9 percent.
After three decades with top rates below 40 percent, a big hike from today’s 37 percent poses risks politically and perhaps economically. Self-described socialist Bernie Sanders stopped at a 54.2 percent for incomes above $10 million in his 2016 campaign proposal; Democratic nominee Hillary Clinton proposed 43.6 percent for those earning above $5 million.
“I’m very worried about it,” Powell said at The Economic Club of Washington, D.C. “From the Fed’s standpoint, we’re really looking at a business cycle length: that’s our frame of reference. The long-run fiscal, nonsustainability of the U.S. federal government isn’t really something that plays into the medium term that is relevant for our policy decisions.”
The Fed chief’s comments came as the annual U.S. deficit reaches new sustained highs above $1 trillion, a fact many economists worry could spell trouble for future generations. Annual deficits have topped $1 trillion before, but never during a time of sustained economic growth like now, raising concern about what would happen if a recession hits.
Total U.S. debt is about $21.9 trillion, of which $16 trillion is owed by the public. In part because of continued rate increases under Powell, the interest cost on that debt could start to become a bigger and bigger burden.
British lawmakers are set to vote on Prime Minister Theresa May’s much-maligned Brexit deal on Tuesday, with less than three months to go before the U.K. is set to leave the European Union.
May’s proposal is split into a “Withdrawal Agreement,” setting out the terms of the divorce and a “Future Relationship” document, which drafts how the U.K. will interact with the EU in the future.
Parliamentary opposition to May’s deal looks daunting, but the prime minister remains hopeful of getting more assurances from the EU on her Brexit deal.
So far, there has been little sign of any willingness from Brussels to offer May the legal cover she has been seeking — most notably on the so-called “backstop ” arrangement for the Irish border.
If the deal comes to pass, Britain and the EU would be on track to enter into a transition period from March 29. However, negotiations between the U.K. and the bloc would still continue as they attempt to resolve a future relationship.
The coalition “has begun the process of our deliberate withdrawal from Syria. Out of concern for operational security, we will not discuss specific timelines, locations or troop movements,” Colonel Sean Ryan said.
Russia, which has deployed forces into Syria in support of the Damascus government, said it had the impression that the United States wanted to stay despite the announced withdrawal of U.S. troops, RIA news agency reported.
Residents near border crossings that are typically used by U.S. forces going in and out of Syria from Iraq said they had seen no obvious or large-scale movement of U.S. ground forces on Friday.
France on Friday called on Iran to immediately stop all activities linked to ballistic missiles that could carry nuclear weapons after Tehran said it could put two satellites into orbit in the coming weeks.
“France recalls that the Iranian missile program is not conform with U.N. Security Council Resolution 2231,” Foreign ministry spokeswoman Agnes von der Muhll told reporters in a daily briefing.
“It calls on Iran to immediately cease all ballistic missile-related activities designed to carry nuclear weapons, including tests using ballistic missile technology.”
Von der Muhll was responding to comments by President Hassan Rouhani on Thursday, who said two satellites would be sent into space using Iran-made missiles.
Click here to download a pdf of this article, Missile.pdf
“We are looking to make a step-change in the performance of the business,” Steven Armstrong, Ford’s head of Europe, said Thursday in an interview. “There’ll be significant impact across the region. We will be looking at all options,” including potential plant closures.
Ford Motor Co. will shed thousands of jobs at its European operations as part of a bid to return the business to profitability with a broad restructuring that could include shuttering factories.
The carmaker has struggled with an aging model lineup and a contracting market in the U.K., Ford’s biggest in Europe, which is in store for further disruption from Brexit. The manufacturer -- employing some 54,000 workers across the region mainly in Germany, the U.K. and Spain -- plans to cull less profitable models from its lineup and review its joint venture in Russia. In the U.S., it’s already dropping several sedans.
Theresa May is looking at a Brexit “Plan B” amid clear signs Parliament will reject her Brexit deal; opposition Labour Party leader Jeremy Corbyn is calling for a general election to end the impasse.
The implications of May’s defeat in the Commons on Wednesday are becoming clearer. The issue focuses on what May will do next if -- as expected -- she loses the crucial Parliamentary vote on ratifying her Brexit deal next Tuesday.
According to a government official, the prime minister will need to put forward a new motion for debate in Parliament setting out the next steps within three days of losing Tuesday’s vote -- so by Jan. 21.
In theory, this motion on what happens next would not need to be voted on any time soon, but in reality May is likely to call a vote on it in the Commons within a week, the official said.
“China’s economic downturn and commodity price falls have led to and will lead to downturns in global economic growth and commodity prices,” said Nomura’s chief China economist Lu Ting, who sees a 0.1 percent drop in Chinese producer prices this year.
Economists now see the threat of deflation in the manufacturing nation after producer price inflation slowed sharply in December, to the slowest pace since 2016. Nomura Holdings Inc. said "the nightmare of PPI deflation is imminent," China International Capital Corp. said "deflation pressures are on the rise," and Haitong Securities Co. projected the turning point could come as early as this month.
The People’s Bank of China is expected to continue to cut the amount of cash that banks must hold as reserves further in 2019 while keeping interbank borrowing costs largely steady even amid tightening U.S. Federal Reserve policy, according to a survey.
As part of efforts to shore up the slowing economy, the central bank will cut the required reserve ratio by another 150 basis points, in addition to the 100 basis point cut announced last week, according to a survey of 18 bond traders and analysts conducted between Dec. 24 and Jan. 9.
The PBOC will also likely tweak the cost of interbank lending slightly lower for the first time since 2015, taking the rate on 7-day reverse repurchase agreements to 2.45 percent by the end of 2019 from the current 2.55 percent, according to the median estimate in the survey.
The rate will be cut by 5 basis points in the second quarter and another 5 basis points in the third quarter, participants said.
The easing measures altogether will drive gains in government bonds, with the 10-year sovereign yield dropping to as low as 2.8 percent this year, compared with about 3.1 percent now, the survey showed.
China is borrowing billions of dollars each year from the World Bank, despite its position as the world’s second-largest economy, according to a study released Thursday.
The Center for Global Development found that the World Bank’s International Bank for Reconstruction and Development loaned China an average of $2 billion a year, totaling more than $7.8 billion, since the country surpassed the bank’s income threshold for lending in 2016.
The IBRD lends to middle-income and creditworthy low-income countries. It uses resources from those loans to help boost poorer countries. But tension has developed as China is lending billions of dollars of its own to developing countries under opaque terms as part of its “Belt and Road” initiative to build infrastructure.
Some lawmakers want China reined in. “We must end the World Bank’s lending to China, especially at a time when Beijing itself is saddling developing countries with predatory debt on unfair terms. Growing the Chinese economy is not the World Bank’s job,” said Brad Sherman, D-Calif., a member of the House Financial Services and Foreign Affairs committees.
Not a single bank failed last year, a rare occurrence that highlights the strength of the U.S. banking system.
In fact, 2018 was only the third year since the Federal Deposit Insurance Corporation was founded in 1933 that a calendar year passed without a bank failure, according to the Calculated Risk blog.
Thanks to the U.S. economic expansion, corporate tax overhaul and post-financial crisis rules that bolstered safety, banks have been thriving. The six biggest U.S. lenders were on track to generate more than $100 billion in profit, an all-time record, according to Bloomberg.
But the smallest and most vulnerable institutions – those most likely to fail – seem to be benefiting as well. Just eight banks failed in 2017, and all were acquired by larger lenders.
Russia has slapped down Japanese assertions that a deal is in the offing to resolve a decades-old territorial dispute, accusing Tokyo of distorting agreements struck with Moscow to break the deadlock.
Japanese Prime Minister Shinzo Abe is making a push for a treaty with Russia over islands captured by Soviet troops in the last days of World War Two. He is due to hold talks with Russian President Vladimir Putin this month, but Moscow has shown no willingness to cede control over the islands.
A Russian lawmaker on Thursday put forward a bill that would make it illegal for parliament to authorize any part of the territory being handed over by Russia.
*FED: BULLARD (voter) WARNS MORE RATE RISES COULD LEAD TO RECESSION:WSJ
*FED: BULLARD SAYS GOT `GOOD LEVEL' OF POLICY RATE TODAY: WSJ
*FED: TO BE PATIENT IN IMPLENTING MONETARY POLICY, BULLARD TO WSJ
*BOSTIC (non-voter) FED HIKE IN DEC. LIKELY LIFTED RATES CLOSE TO NEUTRAL
*BOSTIC SEES SOLID U.S. GROWTH IN 2019 BUT BIT SLOWER THAN 2018
*BOSTIC SEES LITTLE NEED TO ENGAGE IN RESTRICTIVE FED POLICY
*BOSTIC SAYS PATIENT APPROACH WARRANTED TO ADJUSTING FED POLICY
*BOSTIC: WORRY OVER TARIFFS HAS DOMINATED DISCUSSIONS ON OUTLOOK
*BOSTIC: MARKET TURMOIL A SYMPTOM OF UNCERTAINTY AROUND OUTLOOK
Ted McKinney, U.S. Under Secretary of Agriculture for Trade and Foreign Agricultural Affairs, said the U.S. trade delegation would return to the United States later on Wednesday after a “good few days”.
The talks were extended into an unscheduled third day, showing both sides were “serious”, China’s Foreign Ministry said.
Chinese and U.S. teams ended trade talks in Beijing on Wednesday that lasted longer than expected and officials said details will be released soon, raising hopes an all-out trade war that could badly disrupt the global economy can be avoided.
“China will stick to the main theme of structural deleveraging, properly tackle local governments’ debt risks, and continue to clean up overcapacity, debts and zombie firms,” Yi said in the interview with state-run Xinhua News. Financial risks which were exposed have been tackled in an orderly manner, the overall leverage ratio remains stable and financial risks are generally contained, he said.
“We are going to accurately control overall liquidity,” Yi said in the interview. “While avoiding overly rapid liquidity contraction which would shake the real economy, we should as well stay away from the flood-like stimulus which would hamper structural deleveraging.”
The Chinese central bank will start lending money to banks under a new policy instrument in late January, the governor announced in an interview, promising that China will avoid both massive stimulus and a fast credit contraction.
The targeted Medium Term Lending Facility, which lends cash for up to three years, was announced in December and will encourage banks to lend to small and private companies which are facing credit shortages due to a government debt crackdown. China is trying to balance funneling more cash to the real economy without hampering its campaign to clean up excess debt and financial risk.
“The sanctions do put pressure on the country and the people,” Khamenei said, according to a transcript on his website of a speech in Tehran to commemorate an event from the 1979 revolution.
“The Americans happily say that these sanctions are unprecedented in history. Yes, they’re unprecedented. And the defeat that the Americans will face will be unprecedented, God willing,” he added.
Apple Inc, which slashed its quarterly sales forecast last week, has reduced planned production for its three new iPhone models by about 10 percent for the January-March quarter, the Nikkei Asian Review reported on Wednesday.
That rare forecast cut exposed weakening iPhone demand in China, the world’s biggest smartphone market, where a slowing economy has also been buffeted by a trade war with the United States.
Many analysts and consumers have said the new iPhones are overpriced.
Overall planned production volume of both old and new iPhones is likely to be cut to a range of 40 million to 43 million units for January-March period, from an earlier projection of 47 million to 48 million units, the Nikkei reported, citing one source familiar with the situation.
Apple did not respond to a Reuters request for comment.
The report comes after chip suppliers Samsung Electronics Co Ltd and Skyworks Solutions Inc. flagged weak first-quarter chip demand for smartphones.
Samsung surprised the market on Tuesday with an estimated 29 percent drop in quarterly profit, blaming weak chip demand in a rare commentary issued to “ease confusion” among investors already fretting about a global tech slowdown.
Legislation reaffirming U.S. support for allies in the Middle East, including a measure to punish Americans who boycott Israel, fell victim on Tuesday to a domestic political dispute that has resulted in a partial federal government shutdown.
The U.S. Senate voted 56 to 44, falling short of the 60 votes needed to advance the “Strengthening America’s Security in the Middle East Act.”
The Middle East legislation included provisions supported by both Republicans and Democrats to impose new sanctions on Syria and guarantee security assistance to Israel and Jordan.
However, the act also includes a provision that would let state and local governments punish Americans for boycotting Israel, which opponents, including many Democrats, see as an impingement of free speech.Some Republicans accused Democrats of supporting the Boycott, Divestment and Sanctions (BDS) movement targeting Israel over its treatment of the Palestinians, which they see as anti-Semitic. Democrats in turn accused Republicans of trying to use the BDS measure to divide moderate and liberal Democrats.
The U.S. Supreme Court on Tuesday rejected a request by a foreign government-owned company over its bid to avoid paying penalties if it does not comply with a subpoena issued by a grand jury in a sealed case possibly linked to Special Counsel Robert Mueller’s probe into Russia’s role in the 2016 presidential election.
The court in a brief order turned away a request filed by the company, which is facing a daily fine of $50,000 imposed by a U.S. federal judge in Washington for refusing to comply with a subpoena issued in an investigation. The name of the country and the company and details of the investigation were not publicly disclosed.
“We’ve seen record high auction sizes, so decade-low bid-to-cover makes sense,” said Ian Lyngen, head of U.S. interest-rate strategy at BMO Capital Markets. “I would expect, mechanically, for bid-to-cover ratios to come down, just because there’s not endless, insatiable demand out there for Treasuries.”
The Treasury has boosted its auctions for four straight quarters, surpassing levels last seen in 2009. What’s more, the U.S. has grown more reliant on the public to finance its deficit as the Federal Reserve scales back its purchases of Treasuries to shrink its $4 trillion of crisis-era bond holdings.
The weakness “doesn’t matter until it suddenly does,” says Torsten Slok, Deutsche Bank’s chief international economist. “A declining bid-to-cover ratio increases the vulnerability and probability that investors suddenly will begin to think that a falling bid-to-cover ratio is important. Put differently, all fiscal crises begin with a declining bid-to-cover ratio.”
Lyngen says he’s on the lookout for so-called tails for signs of stress at auctions. A tail occurs when the auction yield is higher than the prevailing market rate for the securities at the time bids close. And a larger tail indicates that bond investors are demanding a bigger concession for the offering.
“Nobody has come forward with a proposal that could secure a majority in the present circumstances. The blunt reality is that such a proposal does not exist,” the People’s Vote campaign group said in the report Wednesday.
“We believe the only credible way forwards for MPs (Members of Parliament) will be to hand the decision back to the people.”
An all-important parliamentary vote on the draft withdrawal agreement is due to be held on Tuesday next week.
Westminster must decide whether to accept May’s plans for a structured exit and relatively close economic ties or reject it and spawn uncertainty over the country’s next steps.
In 2017, 39,773 people in the U.S. were killed by gun violence, the highest tally in decades. Yet guns remain widely available to people prohibited from having them via the Internet or at unregulated gun shows.
The new legislation would require unlicensed sellers to meet buyers at a federally licensed gun dealer, which would run a background check on the purchaser. The bill would include exceptions for family, law enforcement, hunting and emergency self-defense.
The British energy company has discovered 1 billion barrels of crude at an existing oilfield in the Gulf of Mexico. BP also announced two new offshore oil discoveries and a major new investment in a nearby field.
BP made the massive 1 billion-barrel discovery at its Thunder Horse field off the tip of Louisiana.
Executives are crediting their investment in advanced seismic technology and data processing for speeding up the company’s ability to confirm the discoveries at Atlantis and Thunder Horse. BP says it once would have taken a year to analyze the Thunder Horse data, but it now takes just weeks.
Just northeast of Thunder Horse, BP also announced new discoveries at fields near its Na Kika platform.
BP says it plans to develop reservoirs at its Manuel prospect, where Shell holds a 50 percent stake. Producers also found oil at the Nearly Headless Nick prospect near Na Kika, where BP has a 20.25 percent working interest.
“The talks are still underway and I believe we will release a detailed readout after they are concluded,” Chinese foreign ministry spokesman Lu Kang told reporters at a regular briefing Tuesday in Beijing. No timing was given and it wasn’t immediately clear if the U.S. would release a statement.
U.S. Commerce Secretary Wilbur Ross expressed optimism on Monday, telling CNBC that “there’s a very good chance that we’ll get a reasonable settlement.” Vice Premier Liu He made an appearance at the talks on Monday in a sign the Chinese were also pushing for a positive outcome.
Liu, the chief economic adviser to Chinese President Xi Jinping, made brief remarks at the negotiations, a person familiar with the meeting said. Asked about his presence on Tuesday, Lu from the foreign ministry said it wasn’t surprising for Liu to be there. Liu led a previous round of talks in Washington last year that ended in failure, and he’s expected to meet chief U.S. negotiator Robert Lighthizer later this month.
(Speak for Yourself)
“We’re flying blind to a large extent. We can say what should be happening, but that’s not always what occurs in the data,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York, who will be working on other research Tuesday morning instead of poring over data on the trade balance.
“The trends show a slowdown in both imports and exports long-term, but it’s hard to say in the absence of the data,” he said. “It’s a crucial part of the picture that we don’t have right now.”
The Commerce Department, which houses the statistics-issuing Census Bureau and Bureau of Economic Analysis, is among the agencies -- covering about 25 percent of government funding -- that lack approved spending. That puts on hold the November international-trade data originally scheduled for Tuesday morning in Washington, following the postponement of reports on factory orders, construction spending and new home sales.
While the Labor Department is funded and its releases such as last week’s employment report are proceeding as scheduled, analysts use the Commerce indicators to connect the dots on economic health. The partial shutdown is forcing analysts to get more creative, leaning more on reports such as business surveys and port-traffic data. It’s not just economists: Federal Reserve Bank of Atlanta President Raphael Bostic said Monday that the lack of some data will likely hinder the central bank in its decision making.
The president has broad authority to declare a national emergency under a 1976 law and dozens of emergencies have since been declared, including during the Iran hostage crisis and the aftermath of the Sept. 11 terror attacks.
Under the law governing the Pentagon, the president can declare a national emergency, which would allow the defense secretary to redirect money from military construction funds for projects “necessary” to support the deployment of U.S. armed forces. That allows the secretary to skip congressional approval, which is normally needed to spend federal money.
Job openings are outnumbering unemployed workers across increasingly wide swaths of the United States, forcing businesses to rethink how they find workers, which could keep pressure on the Federal Reserve to raise interest rates despite a global economic slowdown.
The volume of openings first topped the number of jobless people in Midwestern states in early 2017. But in recent months that phenomenon has spread to other regions, particularly the South.
Economists say the most convincing signs of labor shortages would be a surge in wage growth. While average hourly earnings rose 3.2 percent in December that is tepid by historical standards.
It is possible that the imbalance between job openings and unemployed workers owes partly to the ease with which online job advertisements can be posted. Additionally, it may overstate labor market tightness because people not actively looking for work are not counted in the ranks of the unemployed.
(Transactional v. Transformational)
“It’s intriguing that the domestic demand part is the weak part — the external demand is not that bad,” said Taimur Baig, chief economist at DBS Group Research.
“Particularly weak” domestic demand was possibly signaling structural changes in the Chinese economy, Baig told CNBC’s “Capital Connection.”
For its part, DBS forecasts China’s GDP growth to be “sub-6 percent” currently, Baig said.
While official data indicated China’s economy held up for much of last year, as production metrics and export orders fall amid the country’s trade dispute with the U.S., its largest trading partner.
Despite negotiations between the two economic giants underway in Beijing, Baig said it was unlikely that the trade war would end in the next three to six months because the areas of disagreement extend far beyond imports and exports.
A positive signal, according to Baig, would be an extension of the three-month truce into the summer, giving the global economy some respite for the first half of the year.
“But beyond that, let’s keep our expectations checked,” he said.
A dramatic plunge in German industrial activity late last year raised the risk that Europe’s largest economy will slip into recession.
Production fell for a third month in November and posted its worst year-on-year drop since the end of the financial crisis, with weakness in everything from consumer goods to energy. A slump in Germany has repercussions for the euro area, where separate numbers on Tuesday showed economic confidence has fallen to the lowest in almost two years.
The German numbers, while volatile, follow a bigger-than-expected decline in factory orders. That’s sparked recession talk among investors and economists already fretting about slower global momentum.
Britain plans to hold a vote in parliament on the government’s deal to leave the European Union on Jan. 15, Prime Minister Theresa May’s spokesman said on Tuesday after a meeting of senior ministers.
May again told her cabinet it was not government policy to delay Brexit by extending the so-called Article 50 notice, the spokesman said, adding the idea may have been discussed by EU officials but not by British officials.
“Subject to parliament approving a business motion, the debate will be opened tomorrow ... The prime minister said that she would close the debate next Tuesday, which is January 15, when the vote will take place,” her spokesman told reporters.
Turkey’s President Recep Erdogan issued a blunt put-down against White House national security advisor John Bolton over his pledges to ensure Turkish non-aggression against Kurds who fought against the Islamic State (IS) in Syria.
“We cannot accept Bolton’s messages given from Israel,” the Turkish president said on Monday, adding that Bolton made a “serious mistake,” Reuters reported.
He was referring to statements by the senior Trump administration official, made from Israel over the weekend, promising safety for the U.S.-allied Kurdish militias — who dominate areas in Northern Syria and whom the Turks view as terrorists — in the event of a U.S. military withdrawal.
The militias, known as the Kurdish People’s Protection Units (YPG), are the armed wing of the Democratic Union Party (PYD), an offshoot of the designated terrorist group called the Kurdistan Workers Party which has carried out a decades-long insurgency against the Turkish state. They’re also America’s primary partners on the ground in Syria: the Pentagon has been supplying the YPG with weaponry, air support and training to battle IS since 2015, and the militias have suffered thousands of casualties fighting for the U.S.-led coalition.
The Taliban said on Tuesday they had canceled planned peace talks with U.S. officials in Qatar this week over an agenda disagreement.
“Both sides have agreed to not meet in Qatar,” senior Taliban members based in Afghanistan told Reuters.
Talks had been planned for two days starting Wednesday in Qatar, senior Taliban members earlier told Reuters. The Taliban had rejected requests from regional powers to allow Afghan officials to take part in the discussion.
Alabama’s attorney general asked federal elections officials on Monday to investigate allegations that the 2017 U.S. Senate election that Republican Roy Moore lost to Democrat Doug Jones was tainted by use of a misleading social media campaign.
Attorney General Steve Marshall has said he was concerned over tactics used in the election. Jones, a former federal prosecutor, became the first Democrat in a quarter-century to win a U.S. Senate race in the state when he upset Moore by a narrow margin to win the seat formerly held by Republican Jeff Sessions.
(Funny how Congress continues to get paid?)
A series of deadlines over the next seven weeks will increase pressure on the Government to cut a deal to end a shutdown that could soon become the longest in history. Hundreds of thousands of workers at nine Cabinet departments and other agencies will soon start to miss paychecks, and the longer the standoff continues, the more consequences Trump and Congress will face -- including shuttered courts, filth piling up in National Parks, and delayed tax refunds.
Jan. 11: Missed Paychecks
Jan. 12: Record Shutdown
Jan. 21: Davos Man
Jan. 29: State of the Union
Late January and February: Tax Returns
March 1: Debt Limit
All Year: Census
(When Robert Lighthizer shows up you know its on)
Chinese Vice Premier Liu He unexpectedly attended the first day of talks aimed at resolving the trade dispute between the world’s two biggest economies, according to people familiar with the matter and a photo seen by Bloomberg.
Liu is the top economic adviser to Chinese President Xi Jinping, who led previous negotiations in Washington that produced a deal that President Donald Trump then repudiated. China had previously said the talks would be led by a lower-ranking official from the Ministry of Commerce.
“I do think China’s economy warrants a little more aggressive easing than the government’s come through so far,” Hannah Anderson, global market strategist at J.P. Morgan Asset Management, told CNBC’s “Capital Connection” on Monday.
But the suite of measures by the central bank so far is “not adding that much liquidity into the market in China,” Anderson noted, referring to the amount of funds available for spending and investment. “So, we should expect further easing ahead,” she added, without specifying the exact measures China would potentially take to stimulate its economy.
Anderson is not the only one with such views. Mark Williams, chief Asia economist at research firm Capital Economics, wrote in a note that China’s next possible “major step” is a cut to benchmark lending rates.
“We suspect the next major step that is not broadly anticipated will be a cut to benchmark lending rates,” Williams wrote last week.
“For all that though, no one should be expecting a rapid improvement in the economy ... Given the downward pressures the economy is facing, we’re expecting stimulus only to arrest the slowdown in growth, probably around the middle of the year, but not to drive a significant rebound,” he added.
China’s main intelligence agency, the shadowy Ministry of State Security, has found itself thrust into the global spotlight as political and trade tensions between the U.S. and China flare. Two of its alleged assets have been publicly named in a sweeping U.S. indictmentinvolving hacking on a global scale. After a top executive of Huawei Technologies Co. was arrested in Canada on a U.S. extradition request, it was MSS agents who abruptly detained two Canadians in China, sparking a diplomatic feud. (Huawei itself has long been suspected of building telecommunications equipment that could give Chinese intelligence a back door to spy on U.S. networks, a charge it denies.) The ministry’s reach continues to grow as President Xi Jinping strengthens security laws, while limits on its power remain vague.
1. What is the MSS?
2. Who runs it?
3. What does it get up to?
4. How’s its reputation?
5. What’s the win/loss record?
6. Does it work alone?
Goldman Sachs Group Inc. chopped back its near-term metals forecasts as China’s economy has “decelerated notably,” while balancing that outlook with a prediction mainland policy makers will respond by stoking expansion in the second half, aiding a revival in copper and aluminum.
The bank -- which had been consistently bullish on raw materials heading into 2019 -- now sees copper at $6,100 a metric ton in three months and $6,400 in six, down from earlier forecasts of $6,500 and $7,000, according to an emailed report received on Monday. The 12-month target was held at $7,000.
Given the political importance of the growth target in China, “policy will need to ease in order to offset the weakness in many parts of the economy,” analysts including Hui Shan said in the Jan. 4 note. Infrastructure investment growth is expected to accelerate to 10 percent in 2019 from 4 percent last year, and annualized quarterly GDP growth will increase, they said.
Chinese venture funding in U.S. startups crested to a record $3 billion last year, according to New York economic research firm Rhodium Group, spurred by a rush of investors and tech companies scrambling to complete deals before a new regulatory regime was approved in August.
Since then, Chinese venture funding in U.S. startups has slowed to a trickle, Reuters interviews with more than 35 industry players show.
U.S. President Donald Trump signed new legislation expanding the government’s ability to block foreign investment in U.S. companies, regardless of the investor’s country of origin. But Trump has been particularly vocal about stopping China from getting its hands on strategic U.S. technologies.
The new rules are still being finalized, but tech industry veterans said the fallout has been swift.
To deliver an electric vehicle that’s cheaper, safer and capable of traveling 500 miles on a single charge, the auto industry needs a breakthrough in battery technology. Easier said than done.
Scientists in Japan, China and the U.S. are among those struggling to crack the code of how to significantly boost the amount of energy a battery cell can store and bring an EV's driving range into line with a full tank of gas. That quest has zeroed in on solid-state technology, an overhaul of a battery's internal architecture to use solid materials instead of flammable liquids to enable charging and discharging. The technology promises major improvements on existing lithium-ion packs, which automakers say are hitting the limits of their storage capabilities and may never hold enough power for long-distance models.
“We don’t see another way to get there without solid-state technology,” said Ted Miller, Detroit-based senior manager of energy storage strategy and research at Ford Motor Co., which has studied various technologies aimed at delivering a more powerful EV battery. “What I can't predict right now is who is going to commercialize it.”
Prototypes currently have battery life that's too short for a vehicle and suffer from poor conductivity, uncompetitive costs and a sometimes violent swelling and shrinking of materials when charged or discharged. When scientists solve one problem, that typically exacerbates another, said Yasuo Ishiguro, managing director of Japan’s Consortium for Lithium Ion Battery Technology and Evaluation Center, or LIBTEC. The group of more than 25 companies—including Toyota, Panasonic Corp. and Nissan Motor Co.—is backed by about $90 million in government funding to speed up progress.
Currently, the best prototype with solid-state batteries is only powerful enough to propel a one-person vehicle across a Toyota Motor Corp. parking lot near Japan’s Mount Fuji. Car companies such as Daimler AG and Fisker Inc. are working on the task, as are a Chinese lithium giant, the French oil company Total SA, and spinoffs from the Massachusetts Institute of Technology and Stanford University. Fisker may conduct vehicle tests as early as this year, while Toyota and Daimler timelines extend into the 2020s.
A U.S. guided-missile destroyer sailed near disputed islands in the South China Sea in what China called a “provocation” as U.S. officials joined talks in Beijing during a truce in a bitter trade war.
The USS McCampbell carried out a “freedom of navigation” operation, sailing within 12 nautical miles of the Paracel Island chain, “to challenge excessive maritime claims”, Pacific Fleet spokeswoman Rachel McMarr said in an emailed statement.
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