Tag Archives: Economy

Qatar rift risks raising cost for Gulf debt issuers and slowing Saudi reforms

FILE PHOTO: Cars drive past the King Abdullah Financial District, north of Riyadh, Saudi Arabia, March 1, 2017. REUTERS/Faisal Al Nasser/File Photo

By Saeed Azhar, Davide Barbuscia and Katie Paul

DUBAI/RIYADH (Reuters) – Qatar’s rift with its Arab neighbors is threatening to puncture investor appetite for the Gulf region as a whole, translating into potentially higher debt costs for governments and possibly slowing the pace of Saudi Arabia’s economic reforms.

Saudi, United Arab Emirates, Bahrain and Egypt broke relations and transport ties with Qatar on June 5, alleging it finances terrorism, something Doha vehemently denies.

The move has thrown the region — which has been relatively stable, if troubled by Sunni and Shi’ite Muslim rivalry — into diplomatic turmoil that is now putting off investors.

“We were used to a relatively peaceful region and now the landscape has changed,” said Brigitte Le Bris, head of emerging debt and currencies at Paris-based Natixis Asset Management, which manages about 350 billion euros ($392 billion) in assets.

“We are not yet ready to increase our exposure to the region. We need to know whether this crisis is isolated to Qatar or it can spread and affect other countries or the crisis can worsen.”

One obvious area is sovereign debt, where the crisis has the potential of raising borrowing costs.

Following the sanctions, rating agency Standard & Poor’s downgraded Qatar while Fitch put it on its watchlist for a potential downgrade.

To date, foreign investors still appear to be comfortable holding Qatar paper due to the size of the country’s reserves and assets held by its sovereign wealth fund, Qatar Investment Authority.

Yields on Qatar’s sovereign dollar bonds maturing in 2026 spiked over 40 basis points after the sanctions were announced on June 5 but have now recovered nearly 20 bps.

Other Gulf Cooperation Council countries’ sovereign bonds saw some weakness in the immediate aftermath of the diplomatic crisis, but again have largely gone back to their pre-crisis levels.

How long this lasts, however, may depend on how long the crisis goes on, which may be “for years” according to one UAE minister..

The market’s take, however, is that the diplomatic crisis will be resolved via political mediation, said Max Wolman, senior portfolio manager at Aberdeen Asset Management in London.

“But if the likes of Bahrain, Oman or even Saudi Arabia were to issue these days, I think there would be a slight risk premium of 10 to 15 basis points in the primary to the secondary market because of current political uncertainty,” he said.

SAUDI REFORMS

Another risk could be to Saudi Arabia’s economic reforms, many of which depend on investor cash flowing in.

“Investors may become concerned about Saudi over-extending itself, as the war in Yemen continues and domestically reforms have adversely impacted consumer sentiment,” Asha Mehta, portfolio manager at Acadian Asset Management.

A senior banker, who has done extensive investment banking work in the Middle East, pointed to the high-profile listing of oil company Aramco as a potential issue.

“If the situation continues like this and they planned their IPO, they would be bombarded with questions on this (political upheaval),” he told Reuters, asking not to be named.

Even though the Aramco IPO is not expected until 2018, Saudi Arabia was preparing the sale of government stakes in airports, healthcare and educational firms, aiming to raise $200 billion.

The privatization is part of the reforms to reduce Saudi Arabia’s dependence on oil, after its price plunge hurt the kingdom’s economy and stretched its finances.

Bank of America Merrill Lynch in a recent note said geopolitics may delay the reforms, although not derail them.

Saudi’s reform process could get some impetus, however, from the announcement on Wednesday that Mohammed bin Salman will become the crown prince, replacing his cousin in a sudden announcement that confirms Saudi Arabia King Salman’s 31-year-old son as next ruler of the kingdom.

MBS, as he is known, was behind the sweeping economic reforms aimed at ending the kingdom’s “addiction” to oil, part of his campaign.

Brent was unchanged at $46.02 barrel at 0651 GMT on Wednesday at multi-month lows after falling nearly 2 percent in the previous session to its lowest settlement since November as investors discounted evidence of strong compliance to a deal to cut a global output.

(additional reporting by Marc Jones in London, and Tom Arnold in Dubai Editing by Jeremy Gaunt)

Fed’s Fischer says more to be done to prevent future crises

FILE PHOTO: U.S. Federal Reserve Vice Chair Stanley Fischer addresses The Economic Club of New York in New York, U.S. on March 23, 2015. REUTERS/Brendan McDermid/File Photo

(Reuters) – Federal Reserve Board Vice Chair Stanley Fischer on Tuesday warned that while the U.S. and other countries have taken steps to make their housing finance systems stronger, more needs to be done to prevent a future crisis.

Fischer did not address the outlook for U.S. monetary policy or the economy in remarks prepared for delivery to the DNB-Riksbank Macroprudential Conference Series in Amsterdam.

Instead he focused on preventing financial instability, arguing that since the 2007-2009 financial crisis in the United States, “the core of the financial system is much stronger, the worst lending practices have been curtailed, much progress has been made in processes to reduce unnecessary foreclosures,” and a 2008 law helped clarify the status of government support for housing agencies Fannie Mae and Freddie Mac.

But to prevent a new crisis, he said, governments ought to do more, including stress tests for banks on their resilience should house prices decline dramatically, and making it easier to avoid foreclosures, which hurt both lenders and borrowers.

“(T)here is more to be done, and much improvement to be preserved and built on, for the world as we know it cannot afford another pair of crises of the magnitude of the Great Recession and the Global Financial Crisis,” he said.

(Reporting by Ann Saphir; editing by Diane Craft)

U.S. retail sales post biggest drop in 16 months

A shopper passes a window display at the Beverly Center mall in Los Angeles, California November 8, 2013. REUTERS/David McNew

WASHINGTON, June 14 (Reuters) – U.S. retail sales recorded their biggest drop in more than a year in May amid declining purchases of motor vehicles and discretionary spending, which could temper expectations for a sharp acceleration in economic growth in the second quarter.

The Commerce Department said on Wednesday retail sales fell 0.3 percent last month after an unrevised 0.4 percent increase in April. May’s decline was the largest since January 2016 and confounded economists’ expectation for a 0.1 percent gain.

Retail sales rose 3.8 percent in May on a year-on-year basis. Some of the drop in monthly retail sales reflected lower gasoline prices, which weighed on receipts at service stations.

Excluding automobiles, gasoline, building materials and food services, retail sales were unchanged last month after an upwardly revised 0.6 percent rise in April.

These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product and were previously reported to have increased 0.2 percent in April.

Growth is expected to pick up this quarter after being held back by a near stall in consumer spending and a slower pace of inventory investment at the start of the year.

The economy grew at a 1.2 percent annualized rate in the first quarter after notching a 2.1 percent pace in the October-December period.

The Atlanta Fed is forecasting the economy growing at a 3.0 percent annualized rate in the second quarter, but this estimate could be trimmed following the weak core retail sales.

May’s surprise sluggishness in consumer spending, which accounts for more than two-thirds of the U.S. economy, could worry Federal Reserve officials who have previously attributed the slowdown in domestic demand to transitory factors.

Still, the U.S. central bank is expected to raise interest rates by 25 basis points later on Wednesday, the second increase this year. Further rate hikes are likely to depend on the outlook for inflation and economic growth.

Auto sales fell 0.2 percent after rising 0.5 percent in April. Receipts at service stations dropped 2.4 percent, the largest decline since February 2016. Sales at building material stores were unchanged, while receipts at clothing stores rose 0.3 percent.

Department store sales tumbled 1.0 percent, the largest drop since July 2016. Department store sales are being undercut by online retailers, led by Amazon.com <AMZN.O>. That has led some retailers, including Macy’s <M.N>, Sears <SHLD.O> and Abercrombie & Fitch <ANF.N> to announce shop closures.

Sales at online retailers increased 0.8 percent last month after rising 0.9 percent in April. Sales at electronics and appliance stores plunged 2.8 percent, the largest drop since March 2010.

Receipts at restaurants and bars dipped 0.1 percent, while sales at sporting goods and hobby stores fell 0.6 percent.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

California governor, legislature agree on final budget

FILE PHOTO - California Governor Jerry Brown attends the International Forum on Electric Vehicle Pilot Cities and Industrial Development in Beijing, China June 6, 2017. REUTERS/Thomas Peter

By Robin Respaut

(Reuters) – California Governor Jerry Brown announced on Tuesday that state lawmakers had reached an agreement about the state’s 2017-2018 budget.

Both houses of the state legislature will likely vote on the new budget on Thursday, the constitutional deadline for lawmakers to adopt a budget bill.

California’s Department of Finance had not totaled the final budget numbers as of Tuesday morning, according to department spokesperson H.D. Palmer.

The budget adds $1.8 billion to the state’s rainy day fund, expands access to California’s Earned Income Tax Credit and boosts funding for schools and infrastructure repairs, according to the governor’s office. It also sends more money to the nation’s largest public pension fund, California Public Employees’ Retirement System (CalPERS), to help reduce the fund’s unfunded liability.

“This budget keeps California on a sound fiscal path and continues to support struggling families and make investments in our schools,” Brown said in a statement on Tuesday.

“This budget makes historic investments in healthcare, education, and childcare, and lays down a multi-billion dollar investment to start fixing our roads and infrastructure,” said Senate President pro tem Kevin de León.

Brown proposed a state budget in January for the new fiscal year and revised his budget up 2.2 percent to $183.4 billion in May.

(Reporting by Robin Respaut; Editing by Chizu Nomiyama)

U.S. wholesale inventories post biggest drop in more than a year

Shelves are stacked with wholesale merchandise at a Wal-Mart Stores Inc company distribution center in Bentonville, Arkansas June 6, 2013. REUTERS/Rick Wilking

WASHINGTON, June 9 (Reuters) – – U.S. wholesale inventories fell more steeply in April than the government had previously estimated, posting their biggest drop in more than a year as sales also fell sharply.

The Commerce Department said on Friday that wholesale inventories fell 0.5 percent in April after increasing 0.1 percent in March. The department reported last month that wholesale inventories slipped 0.3 percent in April.

Automotive inventories fell 1.4 percent while petroleum inventories dropped 5.0 percent, their biggest fall since December 2015. Paper inventories fell 1.8 percent in the category’s biggest drop since January 2013.

Wholesale stocks of electrical goods also slipped 0.1 percent while machinery inventories were flat.

Sales at wholesalers fell 0.4 percent in April after falling 0.2 percent in March. Sales of electrical goods rose 0.7 percent while those of machinery fell 0.8 percent. Auto sales were up 1.3 percent.

At April’s sales pace it would take wholesalers 1.28 months to clear shelves, unchanged from March.

(Reporting by David Lawder; Editing by Paul Simao)

Wall St. rises as Comey testimony springs no surprise

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., June 2, 2017. REUTERS/Brendan McDermid

By Tanya Agrawal

(Reuters) – U.S. stocks were higher in early afternoon trading on Thursday after former FBI Director James Comey’s testimony was seen by investors as having no smoking gun that could affect Donald Trump’s presidency.

Comey, who was investigating alleged Russian meddling in the 2016 U.S. presidential election, said he had no doubt that Russia interfered with the election, but was confident that no votes had been altered.

Comey said he was disturbed by Trump’s bid to get him to drop a probe into former national security adviser, Michael Flynn, but would not say whether he thought the president sought to obstruct justice.

Investors were concerned that any major revelation by Comey could dampen already flagging momentum for Trump’s agenda of lower taxes and lax regulations.

Bets that Trump can implement his agenda are partly behind a rally that has taken stock indexes to record highs.

“I think the market is taking less of an alarmist review of this situation because there is no smoking gun here. So it’s not particularly impactful for thinking about … Trump’s economic agenda to go through,” said Thomas Simons, money market economist at Jefferies &amp; Co in New York.

Earlier on Thursday, the European Central Bank signaled no further interest rate cuts as euro zone prospects improved, but said subdued inflation meant it would continue to pump more stimulus into the region’s economy.

Investors are also awaiting the results of the UK general election. Opinion polls show Theresa May’s Conservative Party leading between 5 and 12 percentage points over the main opposition Labour Party, suggesting she would increase her majority.

“The market cares because if Theresa May loses the majority that would be disruptive of the Brexit process,” said Art Hogan, chief market strategist at Wunderlich Securities in New York.

“Getting back into something that seemed to be a fair and orderly process into something that’s going to be more disruptive would not be a market positive.”

At 12:36 p.m. ET, the Dow Jones Industrial Average &lt;.DJI&gt; was up 68.55 points, or 0.32 percent, at 21,242.24 and the S&amp;P 500 &lt;.SPX&gt; was up 4.06 points, or 0.16 percent, at 2,437.2.

The Nasdaq Composite &lt;.IXIC&gt; was up 14.46 points, or 0.23 percent, at 6,311.84.

Six of the 11 major S&amp;P sectors were lower, with the defensive utilities index’s &lt;.SPLRCU&gt; 1.04 percent loss topping the decliners.

Financials &lt;SPSY&gt; rose 1.59 percent leading the gainers.

Shares of Alibaba Group Holding &lt;BABA.N&gt; were up 11.3 percent at $139.78 after the company said it expected revenue growth of 45-49 percent in the 2018 fiscal year.

Yahoo &lt;YHOO.O&gt;, which owns a 15.5 percent stake in Alibaba, rose 8.3 percent.

Nordstrom &lt;JWN.N&gt; jumped 10.6 percent to $44.78 after the department store operator said that some members of the controlling Nordstrom family have formed a group to consider taking the company private.

Advancing issues outnumbered decliners on the NYSE by 1,624 to 1,188. On the Nasdaq, 1,832 issues rose and 926 fell.

(Reporting by Tanya Agrawal in Bengaluru; Additional reporting by Sinead Carew and Dion Rabouin; Editing by Anil D’Silva and Savio D’Souza)

World food prices climb in May, import bill to rise in 2017: FAO

FILE PHOTO: Canadian pork shoulders are being prepped on a butcher's counter at North Hill Meats in Toronto, Ontario, Canada on May 10, 2017. Picture taken on May 10, 2017. REUTERS/Hyungwon Kang/File Photo

ROME (Reuters) – Global food prices rose in May from the month before after three months of decline, and the world’s food import bill is set to jump in 2017, the United Nations food agency said on Thursday.

Higher values for all food goods except sugar lifted prices on international markets 10 percent above the same month last year, the Food and Agriculture Organization (FAO) said.

Rising shipping costs and larger import volumes are due to push the cost of importing food globally to more than $1.3 trillion in 2017, FAO said.

This would be a 10.6 percent rise over 2016’s import bill, despite broad stability in markets buoyed by ample supplies of wheat and maize and higher production of oilseed products.

Poor countries that rely on imports to cover their food needs, and part of sub-Saharan Africa are on course for an even faster rise in their import costs as they buy in more meat, sugar, dairy and oilseed products.

All food categories except fish are due to add to rising import bills, as robust growth in aquaculture in many developing countries increasingly manages to meet domestic demand.

FAO’s food price index, which measures monthly changes for a basket of cereals, oilseeds, dairy products, meat and sugar, averaged 172.6 points in May, up 2.2 percent from April.

FAO trimmed its forecast for global cereals output in the 2017-18 season to 2.594 billion tonnes, down 0.5 percent year-on-year. Global wheat production is expected to decline 2.2 percent after a record harvest last year.

(Reporting by Isla Binnie, editing by Steve Scherer and Crispian Balmer)

Violence engulfs Venezuelan capital, teenage protester dies

Riot security forces members catch fire during riots at a rally against Venezuelan President Nicolas Maduro's government in Caracas, Venezuela, June 7, 2017. REUTERS/Carlos Garcia Rawlins TPX IMAGES OF THE DAY

By Andrew Cawthorne

CARACAS (Reuters) – A 17-year-old Venezuelan protester died in ferocious clashes between security forces and protesters in Caracas on Wednesday, taking the death toll from unrest since April to at least 66.

The government said Neomar Lander died when a homemade mortar exploded in his hands while hundreds of youths faced off with National Guard troops in the Venezuelan capital.

Opposition lawmakers, however, said he was killed by a tear gas cannister fired straight at him. The state prosecutor’s office announced a probe, without giving details.

A Reuters photographer saw a young man, assumed to be Lander, lying bloodied and motionless on the street, receiving emergency first aid.

At least 66 people have died, with victims including government and opposition supporters, bystanders and members of the security forces, since demonstrations began against President Nicolas Maduro more than two months ago.

Each side blames the other for the violence.

Critics denounce Maduro as a repressive dictator, and are demanding general elections, foreign humanitarian aid, freedom for hundreds of jailed activists, and autonomy for the opposition-controlled National Assembly.

“We mustn’t let fear intimidate us, let’s stay in the streets to fight for all Venezuelans’ future,” said opposition lawmaker Miguel Pizarro, weeping at a news conference as he described seeing Lander’s death.

“Soon we will able to say these were the last, dark days of the dicatorship.”

Maduro, 54, calls his foes violent right-wing “fascist” conspirators seeking a coup similar to the short-lived 2002 toppling of his predecessor Hugo Chavez.

“This is criminal terrorism, and we must reject it,” Maduro told supporters in a speech carried on state TV, comparing his foes to Adolf Hitler, Benito Mussolini and Augusto Pinochet.

ECONOMIC CRISIS

In the worst turmoil of Maduro’s turbulent four-year rule, thousands of people have been injured and arrested in recent weeks. Protesters are also complaining about hunger and shortages during a brutal economic crisis in the OPEC nation.

In Caracas on Wednesday, security forces using armored vehicles, water cannons and tear gas blocked opposition supporters from marching to the national election board’s headquarters, sparking clashes around the city.

Masked youths with homemade shields hurled stones and Molotov cocktails, and set up burning roadblocks, while businesses and schools closed, and residents ran for cover.

Among hundreds of injuries reported in Caracas and other cities, the government highlighted the case of two National Guard soldiers wounded by gunshots when they were clearing a barricade in the El Paraiso district of the capital.

Seeking to keep the pressure on Maduro, the opposition announced further upcoming activities including a planned censure vote against the interior minister in the National Assembly and a rally in honor of Lander on Thursday.

Maduro has sought to take the heat out of the situation by announcing the creation of a super-body called a constituent assembly with powers to rewrite the constitution, but foes say that is a sham purely designed to keep the socialists in power.

The national election board announced on Wednesday that votes for the new assembly would still go ahead on July 30, despite an opposition boycott, criticism from some within government, and a legal appeal by state prosecutor Luisa Ortega who said it threatened to “eliminate” democracy.

The pro-government Supreme Court rejected her petition in a ruling made public on Wednesday.

(Additional reporting by Carlos Rawlins and Eyanir Chinea; Editing by Phil Berlowitz and Andrew Hay)

Trump pushes infrastructure plan as Russia probe heats up

U.S. President Donald Trump announces his $1 trillion infrastructure plan to the crowd during a rally alongside the Ohio River at the Rivertown Marina in Cincinnati, Ohio, U.S. June 7, 2017. REUTERS/John Sommers II

By Jeff Mason

CINCINNATI, Ohio (Reuters) – President Donald Trump on Wednesday trumpeted plans for $1 trillion in U.S. infrastructure spending as he struggles to gain momentum for his economic agenda amid growing attention on the probe into alleged ties between his campaign and Russia.

“America wants to build,” Trump said. “There is no limit to what we can achieve. All it takes is a bold and daring vision and the will to make it happen.”

Speaking in Cincinnati, Ohio, Trump reviewed a proposal announced earlier this year to leverage $200 billion in his budget proposal into a $1 trillion of projects to privatize the air traffic control system, strengthen rural infrastructure and repair bridges, roads and waterways.

Trump said he would not allow the United States to become a “museum of former glory.” He spoke about backing large transformative projects but did not give specifics.

“We will construct incredible new monuments to American grit that inspire wonder for generations and generations,” he said.

Trump pointed to a government program that allows the private sector to tap into low-cost government loans called the Transportation Infrastructure Finance and Innovation Act as a way to leverage federal funds with state, local, and private sector funding.

Transportation Secretary Elaine Chao said at a Senate hearing on Wednesday that administration plans to unveil a detailed legislative proposal by the end of September.

Democrats want $1 trillion in new federal spending and proposed a plan that includes $200 billion in roads and bridges,$20 billion in expanding broadband Internet access, $110 billion for water systems and $75 billion for schools.

Senate Democratic Leader Charles Schumer said the Trump budget unveiled in May cuts $206 billion in infrastructure spending across several departments, including $96 billion in planned highway trust fund spending.

The Ohio visit was the second leg of a week-long White House focus on infrastructure. On Monday the president proposed spinning off air traffic control from the Federal Aviation Administration.

The proposal to privatize air traffic control has run into skepticism and opposition from Democratic senators and some Republicans.

The infrastructure push comes as the White House seeks to refocus attention on core promises to boost jobs and the economy that Trump made last year during his presidential campaign.

Those pledges have been eclipsed by the furor over Russia’s alleged meddling in the election. That drama will come to a head on Thursday when former Federal Bureau of Investigation Director James Comey, who was leading the Russia probe until Trump fired him last month, testifies before a Senate panel.

(Reporting by Jeff Mason in Cincinnati, Ohio Writing by David Shepardson in Washington; Editing by Chris Sanders and Cynthia Osterman)

Global growth headed for six-year high: OECD

FILE PHOTO: Construction cranes are seen in downtown Los Angeles, California, U.S., May 22, 2017. REUTERS/Lucy Nicholson

By Leigh Thomas

PARIS (Reuters) – The global economy is on course this year for its fastest growth in six years as a rebound in trade helps offset a weaker outlook in the United States, the OECD forecast on Wednesday.

The global economy is set to grow 3.5 percent this year before nudging up to 3.6 percent in 2018, the Paris-based Organisation for Economic Cooperation and Development said, updating its forecasts in its latest Economic Outlook.

That estimate for 2017 was not only a slight improvement from its last estimate in March for 3.3 percent growth, but it would also be the best performance since 2011.

Yet despite this brighter outlook, growth would nonetheless fall disappointingly short of rates seen before the 2008-2009 financial crisis, OECD Secretary General Angel Gurria said.

“Everything is relative. What I would not like us to do is celebrate the fact that we’re moving from very bad to mediocre,” Gurria told Reuters in an interview.

“It doesn’t mean that we have to get used to it or live with it. We have to continue to strive to do better,” he added.

While recovering trade and investment flows were supporting the improving economic outlook, Gurria said barriers in the form of protectionism and regulations needed to be lifted to ensure stronger growth.

The improvement would also not be enough to satisfy people’s expectations for better standards of living and reduce growing income inequality, he said.

The OECD saw an improved global outlook even though it downgraded its estimates for the United States, despite a weaker dollar boosting exports and tax cuts supporting household spending and business investment.

The OECD forecast U.S. growth of 2.1 percent this year and 2.4 percent next year, down from estimates in March of 2.4 percent and 2.8 percent, respectively.

OECD chief economist Catherine Mann attributed the downgraded outlook to delays in the Trump administration pushing ahead with planned tax cuts and infrastructure spending.

The weaker U.S. outlook was offset by slightly improved perspectives for the euro zone, Japan and China.

EURO ZONE LOOKING BETTER

Boosted by firmer German growth, the euro zone economy was seen growing 1.8 percent both this and next year, up from 1.6 percent for both years.

Lifted by improving international trade in Asia and fiscal stimulus, Japanese growth was seen at 1.4 percent this year before slowing to 1.0 percent next year, both slightly raised from the OECD’s March estimates of 1.2 percent and 0.8 percent respectively.

The OECD also marginally nudged up its estimates for growth in China to 6.6 percent this year and 6.4 percent in 2018, boosted by stimulus spending.

That in turn was supporting strong imports and helping to fuel a revival in Asian trade. As a result, global trade volumes were seen growing 4.6 percent this year, nearly double the rate seen in 2016.

Among the risks to the OECD’s outlook, it warned that the growing divergence between monetary policy rates among the major central banks raised the chances for financial market volatility.

The OECD also saw a potential for “swift snap-back” in U.S. long-term interest rates when the Federal Reserve decides to reduce the size of its balance sheet, especially if it comes at a time of rising policy rates.

(Reporting by Leigh Thomas; Editing by Hugh Lawson)