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Businesses growing in face of upcoming risks

waiter carries food at British restaurant

By Jonathan Cable

LONDON (Reuters) – Business started 2017 on a solid footing, surveys showed on Friday, thriving ahead of a myriad of political risks in the coming year.

Fears of a growing protectionist agenda in the United States, whether national elections across Europe upset the status quo and just how fractious Britain’s divorce proceedings from the European Union become, are all expected to weigh in the months ahead.

Yet so far those risks seem to have been mostly ignored with firms from Asia to Europe increasing or at least largely maintaining activity. Similar upbeat results are expected later from the United States..

Euro zone businesses started 2017 by increasing activity at the same multi-year record pace they set in December.

China’s factory activity grew for a seventh month and while India’s services business contracted for a third month as firms struggled to recover from a government crackdown on currency in circulation, the pace slowed.

“The outlook for this year is reasonably bright despite all the risks. The numbers for January have generally been quite positive,” said Andrew Kenningham, chief global economist at Capital Economics.

Growth in Britain’s services sector slowed for the first time in four months in January, dipping just below its long-run average, as businesses battled the sharpest rise in costs in more than five years.

But on Thursday the Bank of England sharply revised up its growth forecast for 2017 to 2.0 percent, a view held by only the most optimistic forecaster in a Reuters poll of 50 economists taken last month.

Britain’s economy unexpectedly outpaced all its major peers last year, wrongfooting those who expected an immediate hit from June’s Brexit vote.

The Markit/CIPS British services Purchasing Managers’ Index dropped to a three-month low of 54.5 last month from December’s 15-month high, at the bottom end of a range of forecasts in a Reuters poll of economists, but Markit said the PMIs still point to first quarter growth of 0.5 percent.

IHS Markit’s final composite PMI for the euro zone, seen as a good guide to growth, held at 54.4. It has not been higher since May 2011 and has remained above the 50 mark dividing growth from contraction since mid-2013.

That points to first quarter expansion of 0.4 percent, Markit said, matching the median prediction in a Reuters poll.

“Despite the slightly disappointing outcome this remains a very strong report,” said James Knightley, senior economist at ING.

China’s factory activity expanded for the seventh straight month in January, giving Beijing more room to tackle chronic imbalances in the economy. The Caixin/Markit Manufacturing PMI fell to 51.0.

The world’s second largest economy has seen a broad-based pickup in recent months, with fourth-quarter GDP beating expectations due largely to a strong housing market and higher government spending on infrastructure projects.

A recovery in the country’s “smokestack” industries has also been supported by government mandates to close down outdated production capacity in the coal and steel sectors, as well as a rebound in investment in the property sector that came amid a record flood of credit.

India’s Nikkei/IHS Markit Services PMI remained below 50 registering 48.7 in January as firms still reel from Prime Minister Narendra Modi’s decision in November to abolish high-value bank notes.

Modi’s policy removed 86 percent of the currency in circulation, hitting consumption and capital investments, and shattered traditional cash-reliant supply chains.

(Editing by Jeremy Gaunt)

Cyprus leaders seek new U.N. peace summit in early March: envoy

ATHENS (Reuters) – The leaders of ethnically-split Cyprus have asked the United Nations to prepare for a new peace conference in early March with guarantor powers Britain, Turkey and Greece, a U.N. envoy said on Wednesday.

Greek and Turkish Cypriot leaders Nicos Anastasiades and Mustafa Akinci also agreed at a meeting to reconvene weekly through the month of February to try to resolve outstanding issues, envoy Espen Barth Eide said.

“The leaders requested the United Nations to prepare, in consultation with the guarantor powers, for the continuation of the Conference on Cyprus at political level in early March,” Eide said in a statement.

“They underscored their strong resolve and determination to maintain the current momentum,” said Eide, a former Norwegian foreign minister who has been one of a long line of envoys trying to broker peace on the eastern Mediterranean island.

Cyprus was a British colony until 1960 and its Greek and Turkish Cypriot communities have lived estranged on either side of a U.N.-monitored ceasefire line since 1974, when Turkish forces invaded the island in response to a brief coup by Greek Cypriot militants seeking union with Greece.

The seeds of partition were planted years earlier when Turkish Cypriots withdrew from a power-sharing system after the outbreak of communal violence, which spurred the dispatch of what is now one of the oldest U.N. peacekeeping contingents.

One of the 1960 treaties under which Cyprus was granted independence allows Greece, Turkey and Britain intervention rights in the event of a breakdown of constitutional order.

The foreign ministers of guarantor powers Britain, Greece and Turkey met Cypriot leaders in Geneva in mid-January to weigh security guarantees, seen as crucial to a reunification deal.

That meeting was inconclusive. Turkey and Turkish Cypriots insisted on continued guarantor status while Greece and the Greek Cypriots insisted the current system be dismantled, saying Turkey had abused it with its 1970s invasion and continued stationing of 30,000 troops in northern Cyprus.

(Reporting by Michele Kambas; editing by Mark Heinrich)

Momentum and risk: world economy enters 2017 with winds fore and aft

By Jonathan Cable and Nichola Saminather

LONDON/SINGAPORE (Reuters) – Factories across the world fired up – or at least kept up activity – in January with some registering multi-year output highs, just as a barrage of political risks threatens the global economy with potential harm.

Rising protectionism from the United States, concerns over how Britain’s negotiations on leaving the European Union will pan out, and national elections in Europe’s largest economies all lie ahead.

But entering 2017, economic growth gathered momentum, according to surveys released on Wednesday, following on from last year thanks to a bounce in consumption.

Euro zone factories registered the fastest activity rate for nearly six years, China’s activity expanded for the sixth month and Japanese manufacturing growth was the fastest in almost three years.

Even in Britain, where a slump in sterling since the June referendum stoked the sharpest rise in factory costs on record last month, growth remained robust.

There were also signs of growth in Brazil, where industrial output rose in December at its fastest monthly pace in 2-1/2 years after one of the worst years on record.

“So far momentum is pretty strong heading into 2017,” said Jacqui Douglas at TD Securities. “But political risks are definitely one of the biggest this year and given the surprises we had through 2016 it’s really hard to tell what’s in store.”

Among unexpected events last year was Britain’s vote to leave the EU and the election as U.S president of Donald Trump, both seen as the result of anti-establishment anger among voters who feel left out of the wealth of nations.

Signs of concern this may spread could be found on bond markets. The premium investors demand to hold France’s government debt rather than that of similar economies shot up on so-called Frexit fears – the possibility that the far-right National Front might win the presidential election and try to take the country out of the euro zone.

IHS Markit’s final manufacturing Purchasing Managers’ Index for the currency bloc rose to 55.2 in January from December’s 54.9, its highest since April 2011. A Markit/CIPS UK factory PMI edged down to 55.9 from December’s 2-1/2 year peak of 56.1, matching the consensus forecast in a Reuters poll.

Anything above 50 indicates growth.

A similar survey for the United States due later on Wednesday is expected to show factories in the world’s largest economy also increased activity.

TOKYO TEMPERING TRUMP

A stronger dollar helped major economies such as Japan, where export orders surged, Markit/Nikkei PMI numbers showed, a welcome sign for the economy along with recent data suggesting a more durable recovery may be underway.

However, those encouraging signals sit uncomfortably with the growing threat from Trump’s trade policies. Japan is moving to temper the risks with plans to show Trump its firms are ready to create U.S. jobs, according to a document whose contents were revealed to Reuters.

In export-reliant Asia, and other regions where global supply chains are closely interlinked, Trump’s election is a particular risk to both world trade and broad economic growth if the new president follows though on his “America First” policies.

“The uncertainty surrounding future market access to the U.S. is bound to weigh on investment activity as companies await regulatory certainty,” said Frederic Neumann, co-head of Asian economic research at HSBC in Hong Kong.

“I suspect there’s going to be a lot of capital expenditure expansion projects that will be put on hold as long as the uncertainty surrounding the trade environment persists.”

In China, the world’s second-biggest economy, growth was led by an investment and construction boom that has helped spur global growth. Its official PMI stood at 51.3 in January, slowing marginally from 51.4 in December.

Analysts question whether Chinese growth will be sustainable once the impact of earlier stimulus begins to wear off and if the property market cools. They warn a slowdown in the Asian economic powerhouse could ripple across the region and beyond.

“Within China, we expect that real estate will slow down, because the government is quite keen to contain housing prices,” said Louis Kuijs, head of Asia economics at Oxford Economics in Hong Kong.

Other regional economies like Indonesia showed positive momentum in manufacturing activity, while Indian factory activity returned to modest growth in January, bouncing from a contraction in December triggered by the government’s scrapping of high value banknotes.

Even in laggard South Korea where manufacturing contracted for the sixth straight month, exports rose at the fastest pace in nearly five years.

“We remain quite cautious how much of an acceleration in growth we can see in this pretty challenging climate,” Oxford Economics’ Kuijs said.

“Things like PMI are timely indicators of the hard data but sometimes they do run ahead, and the improvement in actual data doesn’t materialize.”

(Editing by Jeremy Gaunt)

NATO, Russia and trade top the agenda for Trump talks with Britain’s May

By Steve Holland and Elizabeth Piper

WASHINGTON (Reuters) – U.S. President Donald Trump and British Prime Minister Theresa May, who share an unusual bond as the products of anti-establishment uprisings, will sit down on Friday for what could be a difficult search for unity on NATO, Russia and trade.

The meeting will mark Trump’s first with a foreign leader since taking power a week ago, and it could go a long way toward determining how crucial Trump considers the traditional “special relationship” between the two countries.

Trump rode an anti-Washington wave to win on Nov. 8, and May gained power in July after the “Brexit” vote that has put her country on a path to separate from the European Union. The meeting will conclude with a joint White House news conference.

Trump has declared NATO obsolete and expressed a desire for warmer ties with Russia. May considers the trans-Atlantic alliance crucial and is skeptical of Russian President Vladimir Putin.

They both want to begin work on a bilateral trade agreement, which for May would provide proof of stability amid the Brexit breakup and for Trump would support his belief that he can negotiate one-on-one trade pacts.

“They both need this to be a success,” said Heather Conley, a European expert at the Center for Strategic and International Studies think tank.

Trump, she said, “needs to demonstrate that he has a command of issues” while May “needs to hear strong messages of support for her vision of a Britain that works for everyone, a global Britain.”

May, in a speech to Republican lawmakers gathered in Philadelphia on Thursday, suggested she saw the need for some reforms in NATO and for more countries to pay more to the alliance to help fund it, which has been Trump’s main complaint about NATO.

“America’s leadership role in NATO – supported by Britain – must be the central element around which the alliance is built,” May said.

But she said that EU nations “must step up” to ensure NATO remains the cornerstone of the West’s defense.

Trump and May also seem somewhat at odds over how to deal with Russia. In her speech, May said Western leaders should “engage but beware” of Putin and should not accept Putin’s claim that Eastern Europe is now in his sphere of influence.Trump, on the other hand, wants a strong U.S. relationship with Russia to fight Islamic State militants.

“I don’t know Putin, but if we can get along with Russia, that’s a great thing,” Trump told Fox News’ Sean Hannity” on Thursday. “It’s good for Russia, it’s good for us.”

(Reporting by Steve Holland and Elizabeth Piper; Editing by Leslie Adler)

British protesters tell Trump from Tower Bridge: ‘Build bridges not walls’

By Alistair Smout and Luke Bridges

LONDON (Reuters) – A banner reading “Build bridges not walls” was draped across London’s Tower Bridge on Friday as part of a series of protests across the world aimed at expressing displeasure at the inauguration of Donald Trump as U.S. president.

Protesters on the drawbridge, with its two Gothic-style towers, held up pink letters reading “Act now!” soon after sunrise, while others unfurled the banner over the railings and a speedboat with a black flag reading “build bridges not walls” raced down the River Thames.

Beside the British parliament, protesters draped banners saying “Migrants welcome here” and “Migration is older than language” over Westminster bridge. Other protests are planned in London, other British cities and across the world on Friday.

Julie Chasin, a 42-year-old teacher originally from New York who has lived in London for a decade, said she joined the protest to hold up one of the pink letters on Tower Bridge as she was concerned about the Trump presidency.

“Yes Donald Trump is President, but he still needs to protect everybody’s rights,” said Chasin, a Democrat who said she worked on Hillary campaign in North Carolina.

“It’s scary. I hope he’s kept in check. I hope everyone who is telling me not to worry, and saying that we have a strong system of checks and balances, I hope that it’s true,” Chasin said.

Trump has repeatedly pledged to “make America great again”, drawing strong support especially from areas of industrial decline. He said on Twitter that he would fight very hard to make his presidency a great journey for the American people.

TRUMP’S FRESH APPROACH

Due to be sworn in at a ceremony in Washington on Friday, he faces protests in Washington during his inauguration, and in cities from Toronto to Sydney, Addis Ababa and Dublin over his politics which critics say are divisive and dangerous.

The protest in London was organized by the campaign group also called “Bridges not Walls”, in reference to Trump’s pledge to build a wall on the Mexican border.

“We won’t let the politics of hate peddled by the likes of Donald Trump take hold,” Nona Hurkmans of Bridges not Walls said in a statement.

Trump opponents have been angered by his comments during the campaign about women, illegal immigrants and Muslims and his pledges to scrap the Obamacare health reform and build a wall on the Mexican border.

The Republican’s supporters admire his experience in business, including as a real estate developer and reality television star, and view him as an outsider who will take a fresh approach to politics.

For some on the protest in London, Trump’s victory a little over 4 months after the United Kingdom voted to leave the European Union, symbolizes a rise of populism across the West.

“For me it’s about not just the inauguration of Trump, but about the rise of right wing populism across Western Europe and the US, and Trump’s inauguration is a celebration of that,” Jac St John, 26, a doctoral student from London, who unfurled one of the banners.

(Reporting by Alistair Smout and Luke Bridges; editing by Kate Holton and Guy Faulconbridge, Ralph Boulton)

UK government expects to lose Brexit trigger case, making contingency plans: report

LONDON (Reuters) – The British government expects to lose its legal battle to start the Brexit process without going through parliament, and has drafted versions of a bill to put to lawmakers after the ruling, the Guardian newspaper reported on Tuesday.

The Supreme Court is expected to rule in the next two weeks on whether the government can trigger Article 50 of the European Union’s Lisbon Treaty, the first formal step toward leaving the bloc, without first getting parliament’s approval.

Citing unnamed sources, the Guardian reported that ministers had privately conceded they were very likely to lose the case, and had drawn up at least two versions of a bill to be presented to parliament after the ruling. [http://bit.ly/2iiL6oP]

The report also said the government had asked the court for early sight of the ruling before it is made public, to allow for contingency planning.

During the Supreme Court hearing in December, government lawyer James Eadie said that if judges ruled parliament had to give its assent to the triggering of Article 50, the solution would be a “one-line” bill.

The Guardian said ministers were hoping the ruling would allow Prime Minister Theresa May to put forward a short bill or motion, narrowly focused on Article 50, to make it difficult for lawmakers to amend.

Those in favor of a clean break with the European Union are concerned that parliament, where a majority of members were in favor of remaining in the bloc, could seek to water down ministers’ plan in pursuit of a so-called “soft Brexit”.

The government’s opponents in the legal battle argued that triggering Article 50 would nullify the 1972 act of parliament that opened the way for Britain to join the EU, and therefore parliament had to give its assent for its act to be undone.

London’s High Court backed that argument, prompting the government to appeal to the Supreme Court, Britain’s highest judicial body, in December.

(Reporting by Estelle Shirbon; editing by Michael Holden)

New U.N. chief urges Security Council to do more to prevent war

By Michelle Nichols

UNITED NATIONS (Reuters) – New United Nations Secretary-General Antonio Guterres urged the Security Council on Tuesday to take more action to prevent conflicts instead of just responding to them as he pledged to strengthen the world body’s mediation capacity.

“The United Nations was established to prevent war by binding us in a rules-based international order. Today, that order is under grave threat,” Guterres said in his first address to the 15-member council since taking office on Jan. 1.

Guterres, a former prime minister of Portugal and former U.N. refugee chief, said too many opportunities to prevent conflicts had been lost due to mistrust among states and concerns over national sovereignty.

“Such concerns are understandable, in a world where power is unequal and principles have sometimes been applied selectively. Indeed, prevention should never be used to serve other political goals,” he told the council.

“On the contrary, prevention is best served by strong sovereign states, acting for the good of their people,” he said.

The council has been largely deadlocked on the six-year war in Syria, with Russia and China pitted against the United States, Britain and France. The body has also been split on its approach to other conflicts and crises such as South Sudan and Burundi, with some members citing sovereignty concerns.

“Russia has suggested … that failure to respect state sovereignty is the main driver of conflict,” U.S. Ambassador to the United Nations, Samantha Power, said.

“Even as Russia has used its veto to insulate itself from consequences in this council for trampling on Ukraine’s sovereignty,” she said, referring to Russia’s 2014 annexation of Crimea.

Russian U.N. Ambassador Vitaly Churkin shot back at Power.

“It is a violation of sovereignty by the United States that led to the very dire situation in a number regions of the world, which we now have to tackle,” he said, citing countries including Iraq and Libya.

Guterres asked the council to make greater use of Chapter 6 of the U.N. Charter, which allows the body to investigate and recommend procedures to resolve disputes that could eventually endanger international peace and security.

He outlined steps he was taking to bolster the United Nations’ prevention capabilities, which he described as “fragmented.” He has created an executive committee to integrate all U.N. arms and appointed a senior official merge U.N. prevention capacities for better action.

“We will launch an initiative to enhance our mediation capacity,” he said. “We spend far more time and resources responding to crises rather than preventing them … We need a whole new approach.”

(Reporting by Michelle Nichols; Editing by Tom Brown)

Dollar falls against yen on risk reduction; sterling sinks

By Sam Forgione

NEW YORK (Reuters) – The U.S. dollar slumped against the safe-haven yen on Monday on investors’ reduced appetite for risk, while sterling sank to more than two-month lows on talk that Britain would drastically rework trade ties with the European Union after Brexit.

A fall in U.S. Treasury yields and U.S. stocks drove the dollar down as much as 0.6 percent against the yen to a session low of 116.16 yen JPY=. The dollar remained within recent trading ranges and did not test Friday’s more than three-week low of 115.04 yen.

Analysts said there was no fundamental catalyst for the dollar’s decline against the yen, with traders probably reacting to lower U.S. yields and equities.

“There’s an optical relationship with the fact that stocks are lower,” said Shahab Jalinoos, global head of FX strategy at Credit Suisse in New York.

The dollar was last down 0.4 percent at 116.43 yen. It dipped modestly against the euro and Swiss franc, leading the dollar index .DXY, which measures the greenback against a basket of six major currencies, to stand 0.08 percent lower at 102.150.

The pound slid more than 1 percent against both the dollar GBP=D4 and the euro EURGBP=R after weekend comments from British Prime Minister Theresa May that she was not interested in keeping “bits of membership” of the European Union.

Sterling slid as low as $1.2125, its weakest against the dollar since the end of October. It fell about 1.2 percent against the euro, hitting 86.91 pence per euro, the lowest since mid-November.

“Anything that suggests a hard Brexit is more likely … is very damaging to UK growth prospects,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp in New York.

Against the dollar, sterling was last down 1 percent at $1.2156, while the euro EUR= was up 0.3 percent at 1.0562. The dollar was down 0.17 percent against the franc at 1.0162 francs CHF=.

On Wall Street, the benchmark S&P 500 stock index .SPX was down 0.13 percent, while benchmark 10-year U.S. Treasury yields US10YT=RR fell nearly four basis points on the day to 2.383 percent.

(Reporting by Sam Forgione; Additional reporting by Marc Jones in London; Editing by Lisa Von Ahn))

Hard Brexit is not inevitable, says British PM May

By Elizabeth Piper

LONDON (Reuters) – A clean break with the EU’s single market is not inevitable, British Prime Minister Theresa May said on Monday, seeking to clarify comments that pushed down the pound on the possibility of a hard Brexit from the European Union.

She criticized British media for misinterpreting what she described as long-term position on EU talks but the pound failed to recover from a 10-week low and was down more than 1 percent to the dollar and 1.2 percent against the euro on the day.

May, under pressure to offer more detail on her strategy before launching divorce talks with the European Union, said on Sunday in her first televised interview of the year that Britain would not be able to keep “bits” of its membership.

Some commentators saw that as a sign she was heading for a hard Brexit, which business says would damage the economy by breaking links with the single market of 500 million consumers. May shot back that the media was using terms she did not accept.

“I’m tempted to say that the people who are getting it wrong are those who print things saying I’m talking about a hard Brexit, (that) it is absolutely inevitable there’s a hard Brexit,” she told the Charity Commission, a government department that regulates charities in England and Wales.

“I don’t accept the terms hard and soft Brexit. What we’re doing is (that we are) going to get an ambitious, good, best possible deal for the United Kingdom in terms of … trading with and operating within the single European market.”

May’s frustration was clear. The former interior minister, who was appointed as prime minister shortly after Britain voted to leave the EU at a June referendum, is increasingly concerned that Brexit will define her time in power, sources say.

In her speech on Monday, she said she wanted her government to help to heal the divisions in Britain that were deepened by the EU vote, and ensure that “everyone has the chance to share in the wealth and opportunity on offer in Britain today”.

She announced measures to boost support to those suffering from mental health problems and said she would do more on housing, education and schooling, but despite applause from the audience, two out of four questioners asked about Brexit.

May has repeatedly said she will not reveal her strategy before triggering Article 50 of the EU’s Lisbon Treaty to start some of the most complicated negotiations since World War Two, but her reticence has spurred scrutiny of her every comment.

She has largely stuck to the script that she wants Britain to regain control over immigration, restore its sovereignty and also to get the best possible trading relations with the EU, but any comment that seems to stray is pored over for signs of how May sees Britain’s future relationship with the EU.

Asked whether May had ruled out getting preferential access to the single market in her interview on Sunday, her spokeswoman said she had ruled nothing out or in.

On Monday, May again said she was ambitious before the talks with the EU, which are due to be launched before the end of March.

“But we mustn’t think of this as sort of leaving the EU and trying to keep bits of membership, what bits of membership will we keep,” she said.

“It’s a new relationship, we’ll be outside the EU, we will have a new relationship but I believe that can be a relationship which has a good trading deal at its heart.”

(Additional reporting by William James and Kylie MacLellan; editing by Jeremy Gaunt)

After U.S. intel report on Putin, British government launches cyber security review

Man typing on keyboard representing cyber security threats

LONDON (Reuters) – The British government said on Monday it is launching a national inquiry into cyber security to assess the extent to which the UK is protected from an ever-increasing tide of attacks worldwide.

The inquiry comes only two days after U.S. intelligence agencies said Russian president Vladimir Putin ordered an effort to help U.S president-elect Donald Trump’s electoral chances by discrediting Hillary Clinton in the 2016 U.S. presidential campaign.

“Attention has recently focused on the potential exploitation of the cyber domain by other states and associated actors for political purposes,” said Margaret Beckett, chair of parliament’s joint committee on national security strategy.

“But this is just one source of threat that the government must address,” she added, in a statement.

Cyber attacks in the UK have been on the rise, with businesses such as banks and retailers increasingly becoming targets for hackers.

Reported attacks on financial institutions in Britain rose from just five in 2014 to 75 in the year to October 2016, data from Britain’s Financial Conduct Authority (FCA) show. Last year, retailer Tesco’s banking arm suffered an attack which saw some 2.5 million pounds stolen from 9,000 current accounts.

The inquiry will look at issues including the types of cyber threats faced by the UK, the extent of human, financial and technical capital committed to address threats, and the development of offensive cyber capabilities.

The inquiry forms part of the second National Cyber Security Strategy launched in November last year, which has a total budget of 1.9 billion pounds running from 2016 to 2021.

(Reporting by Ritvik Carvalho; editing by Stephen Addison)

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