Fears over emerging markets, the US economy, and the prospect of another debt ceiling battle in Washington all hit shares hard in Asia. UK construction activity jumps. Nikkei falls 4.2%. Wall Street opens a little higher after Monday’s rout…
Haldane: EM turbulence caused by countries pushing ‘individual’ policies
Andy Haldane, one of the Bank of England’s brightest and most senior officials, has waded into the emerging markets turbulence by warning that certain countries are pursuing ‘individual’ policies rather than caring about the wider financial system.
In a speech delivered in Oxford this afternoon, Haldane said leaders and policymakers had failed to co-ordinate policies in a better way.
Reuters is there, and reports:
Turmoil in some emerging markets reflects a failure of advanced and developing economies to learn from the financial crisis and coordinate economic policies in a better way, a senior Bank of England official said on Tuesday.
“Individual countries act in their own best interests without taking into account the broader best interest of the financial system as a whole,” said Andy Haldane, the BoE’s executive director for financial stability.
“What is going on with the head-to-head combat is people pursuing policies of individual countries,” Haldane said in a speech at the University of Oxford.”What is at stake is the system as a whole,” he added.
The comments come just a few days after India’s central bank chief, Raghuram Rajan, said international monetary co-operation has broken down as the Federal Reserve tapered, or slowed, its bond-buying stimulus programme – despite the recent upheaval in emerging markets
Haldane’s comments are being interpreted as an nudge to the Federal Reserve too:
BoE’s Haldane says Fed Spillover is dramatic and continues today.
— DailyFXTeamMember (@DailyFXTeam) February 4, 2014
.@livesquawk @CMCMFIN Mr Haldane’s remarks will surely fall on deaf ears in Washington!
— Alastair Winter (@AlastairWinter) February 4, 2014
BANK OF ENGLAND’S HALDANE SAYS INDIVIDUAL COUNTRIES NOT ACTING IN BEST INTEREST OF FINANCIAL SYSTEM AS A WHOLE // Thought UK/US were allies?
— MineForNothing (@minefornothing) February 4, 2014
Look who’s back — Stephen Hester, the former chief executive of Royal Bank of Scotland, has just been appointed as the new CEO of insurance group RSA.
He’ll succeed Simon Lee, who quit in December as the insurer posted its third profit warning.
Running RSA will be a challenge, given the recent discovery of problems at its Irish division. But I guess it’ll be less hassle than cleaning up Fred Goodwin’s mess, being lambasted by the media over the Libor scandal and PPI misselling, and apologising for RBS’s tech problems.
Hester might even get to keep a few bonuses, having surrendered most of his during his time at RBS….
Stephen Hester ex RBS boss off to RSA as CEO
— Jill Treanor (@jilltreanor) February 4, 2014
A couple more interesting points from George Osborne – asked whether the UK recovery is sustainable, he told the Lords economics committee that potential risks include “the weakness of some eurozone countries”, adding that some US economic data in the last couple of weeks has been “a little bit soft”.
The chancellor added that it’s “also worth having on one’s radar the problems in some emerging markets”, as a problem in an emerging market can cause ructions in other parts of the financial system.
Osborne also indicated he had little time for the ‘secular stagnation’ theory being pushed by former US Treasury secretary Larry Summers (with whom Osborne had an entertaining dust-up at Davos).
#Osborne on secular stagnation: Summers too pessimistic, a not surprising verdict given that Summers is amongst O’s biggest critics
— jeremy warner (@JeremyWarnerUK) February 4, 2014
Updated
UK chancellor, George Osborne, is being questioned by the House of Lords economic affairs committee now — he’s started by telling their lordships that Britain is leading Europe on shale gas, and denying that the government isn’t showing leadership over the issue.
It’s being streamed live here.
Our politics liveblogger Andrew Sparrow is tracking all the action here: George Osborne questioned by Lords eocnomic affairs committee: Politics live blog
Here’s a flavour:
Q: If shale drilling takes off, will that have an impact on gas prices?
Osborne says he thinks it will have some impact. But it won’t be as dramatic in the US, he suggests. He says the gas market in the UK is more open, and so the gas price in the UK tracks the world price. But if the gas price overall came down, Britain would benefit.
Microsoft appoints Satya Nadella to replace Steve Ballmer as CEO http://t.co/tn4p3B9wEa @GuardianUS @guardiantech
— The Guardian (@guardian) February 4, 2014
Just in — US factory orders fell by 1.5% in December, which is actually a better result than expected.
The decline was mostly due to a big drop in transportation orders – strip that out and orders were up by 0.2%, which may calm fears of a US slowdown (although no promises!)
Factory orders fall 1.5% in December vs. expectations for a 1.7% decline: http://t.co/vvk3EOFR8N
— CNBC (@CNBC) February 4, 2014
Shares moved a little higher on the news, with the FTSE 100 now up 8 points and the Dow Jones 60 points higher, or 0.4%.
Reuters correspondent Blaise Robinson reports that the emerging market wobbles have made some investors appreciate the virtues of good old Europe:
“The EM crisis is a reminder that boring old Europe is actually pretty good place to be invested in” -Henderson GI’s Ollie Beckett,in Paris
— Blaise Robinson (@blaiserobinson) February 4, 2014
Over on Wall Street, shares are inching higher in early trading as investors try to put yesterday’s heavy selloff behind them.
The Dow Jones index is up 39 points at 15413, +0.3%, with the other indices also slightly higher.
Hardly a bounce-back, though after the biggest one-day fall in seven months — investors may be sitting tight having seen the Asian selloff earlier today, where the Nikkei slumped 4.2% and the Hang Seng fell over 2% into an official correction (10% off its recent peak).
New Microsoft boss takes Wilde swing
Microsoft’s new chief executive, Satya Nadella, wins instant brownie points by quoting Oscar Wilde (sort of), in his letter to staff this morning
Here’s a flavour:
What do we do next?
To paraphrase a quote from Oscar Wilde — we need to believe in the impossible and remove the improbable.
This starts with clarity of purpose and sense of mission that will lead us to imagine the impossible and deliver it. We need to prioritize innovation that is centered on our core value of empowering users and organizations to “do more.” We have picked a set of high-value activities as part of our One Microsoft strategy. And with every service and device launch going forward we need to bring more innovation to bear around these scenarios.
Next, every one of us needs to do our best work, lead and help drive cultural change. We sometimes underestimate what we each can do to make things happen and overestimate what others need to do to move us forward. We must change this.
Finally, I truly believe that each of us must find meaning in our work. The best work happens when you know that it’s not just work, but something that will improve other people’s lives. This is the opportunity that drives each of us at this company.
Many companies aspire to change the world. But very few have all the elements required: talent, resources, and perseverance. Microsoft has proven that it has all three in abundance. And as the new CEO, I can’t ask for a better foundation.
[end]
• – the actual Wilde quote is “Man can believe the impossible, but man can never believe the improbable” (see Collins Dictionary)….
….Not to be confused with Conan Doyle’s “Once you eliminate the impossible, whatever remains, no matter how improbable, must be the truth“.
Updated
Satya Nadella becomes Microsoft CEO
The long search for Microsoft’s next chief executive is over – with the software giant announcing that (as rumoured) Satya Nadella will take the helm.
Nadella had been running Microsoft’s cloud and enterprise computing division, and will succeed Steve Ballmer to become only the third CEO in the company’s history. In another switch, Bill Gates is shifting from the chairman’s role to become ‘technology advisor’ — meaning he’ll spend more time with the company’s staff.
Nadella faces a tough task, given Microsoft’s loss of influence as the technology world in the post-PC world.
In a video message, Gates said Nadella is the “tough leader” the company needs.
In it, Gates declares that “The opportunity for Microsoft is greater than ever before”, from making Office more interactive to perhaps building a new Cloud platform to connect to “all sorts of different devices”.
Speaking of the Anglo Irish Bank trial, here is a mural of the busted financial institution’s uncompleted HQ that never was, down in Dublin’s docklands.
The painting comes complete with images of the tapes that recorded some Anglo executives laughing, joking and even singing about how Irish and German taxpayers were going to rescue themselves and their bank from the abyss.
This anti-Anglo Irish Bank image close to the iconic Ha’penny Bridge on the river Liffey is a 15 minute stroll north towards the criminal courthouse where some of the other Anglo Irish executives stand trial tomorrow morning (from Sean O’Neil and Henry McDonald).
The price of Brent crude oil has dropped through the trading session, as this week’s disappointing US and Chinese manufacturing surveys suggested weaker demand for energy.
Brent is currently down 0.4 of a cent per barrel at $105.6.
Updated
BP sounds alarm on Scottish vote
After reporting falling profits this morning, BP has also waded into the issue of Scottish independence by warning that the issue raises “big uncertainties”.
Speaking to the BBC this morning, Bob Dudley said he was concerned by the “question mark” over whether an independent Scotland would keep the pound. He said:
“We have a lot of people in Scotland. We have a lot of investments in Scotland. My personal view is that Great Britain is great and it ought to stay together.”
Last week, Bank of England governor Mark Carney warned that an independent Scotland would have to give up some control over fiscal policies if it wanted to keep using sterling.
Updated
Over in Ireland, a petrol bomb attack was launched at the company once run by the country’s former richest man, Sean Quinn, last night – a day before the start of a huge trial into the collapse of Anglo Irish Bank.
The attack brought down telephone and broadband links around the headquarters in County Fermanagh, cutting of around 200 people (there’s a photo here).
Our Ireland correspondent, Henry McDonald, reports:
Ireland’s one-time richest man Sean Quinn is one of 800 people who is scheduled to give evidence in Dublin at one of the biggest financial crime trials in European history.
Ex-billionaire Quinn became bankrupt after borrowing billions from the now defunct Anglo Irish Bank when he started to play the global property casino.
Quinn’s gamble spectacularly backfired after the world property crash left him owing billions and resulted in him losing control of his other businesses.
The case against three senior Anglo Irish Bank executives begins on Wednesday morning at Dublin’s Central Criminal Court and could last up to six months (here’s our preview)
Ahead of what will eventually be a momentous day when Sean Quinn finally gets called to the witness box, the former tycoon has other worries today about his old business base in Co.Fermanagh.
Two petrol bombs were thrown close to the headquarters of the former Quinn family business on the Ballyconnell Road in Derrylin close to the border with the Irish Republic. The damage done last night has cut off phone and broadband coverage in the rural area where Quinn was once king.
The petrol bomb attack is the latest in a string of incidents where properties belonging to the Quinn family were damaged.
Last month, a bus was set on fire at the entrance to three of its businesses in Rakeelan, Ballyconnell, across the border in County Cavan.
In December, a fuel tanker was set on fire after being driven into the former headquarters of the Quinn Group in County Fermanagh, Northern Ireland. It was renamed Aventas last November.
HMcD
Updated
Two small earth tremors in 2011 haven’t deterred shale gas firm Cuadrilla with pushing on with its fracking activities in the picturesque Lancashire countryside.
Cuadrilla announced this morning it would dig up to eight wells at two sites in the county – at Roseacre Wood, near Elswick, and to the west of the delightfully named village of Little Plumpton.
From our environment desk, Adam Vaughan reports that Cuadrilla is promising to be a good neighbour as it blasts the bedrock with high-pressure fluids to release gas.
However, Friends of the Earth’s north-west campaigner, Helen Rimmer, said:
“These plans will be met by stiff opposition from local people rightly concerned about having the UK’s first attempted multiple-well fracking operation under their feet.
Cuadrilla claims to be a good neighbour, but it still hasn’t cleared up the mess from the botched fracking operation that caused earth tremors only a few miles from one of the proposed sites.”
Here are the key quotes from the FCA’s Martin Wheatley to MPs this morning, on its investigation into allegations that foreign exchange rates have been rigged by traders:
“I would be surprised if we got to conclusions within this year. I hope that we will next year.
“We are still in the investigation phase … The allegations are every bit as bad as they have been with Libor,”
FCA: FX rigging ‘every bit as bad’ as Libor
Back in parliament the head of the City watchdog, Martin Wheatley, has told MPs that claims that foreign exchange traders collaborated to fix currency bench markets are just as serious as the Libor rate-rigging scandal.
Wheatley said the Financial Conduct Authority was taking allegation of FX benchmark-rigging very seriously, calling them “every bit as bad” as the Libor affair. He said the allegations had cast doubt on the reliability of foreign exchange rates, and also said the regulator is probing other benchmarks…..
However, he wouldn’t give clear details about how the FCA investigation was proceeding — and indicated we might not get results until 2015, or even later.
FCA CEO Wheatley says there are other benchmarks the watchdog is investigating after people raised concerns. Refuses to say which ones.
— Sean Farrell (@farrell_s) February 4, 2014
FSA CEO Wheatley says people won’t trust the way FX rates are fixed after allegations that have come out.
— Sean Farrell (@farrell_s) February 4, 2014
FCA CEO Wheatley says FX investigation unlikely to report this year. Hopes to report next year but “very hard to predict”.
— Sean Farrell (@farrell_s) February 4, 2014
Many major banks have suspended foreign exchange traders since the news broke last autumn that the daily ‘fixes’ (which determine the official exchange rate between currencies) could have been manipulated.
After yesterday’s 326-point tumble, the Dow Jones industrial average is expected to stagger back off the mat with a small rise when trading resumes later today.
David Madden, market analyst at IG, says the Asian tumble and the prospect of another US debt ceiling fight continues to cast a shadow over the City.
Stocks are offside, but holding up relatively well considering the massive selloff in Japan overnight as fears over emerging-market exposure echoed around the world. Traders are treading lightly, not wanting to get stung if there is a sudden exodus from equities into cash or bonds.
The US debt-ceiling deadline is approaching again and, as on the past two occasions, dealers are anticipating downgrade speculation and a slide in stocks.
BP is still suffering from the Gulf of Mexico disaster, and the oil titan’s asset-stripping programme may be topping up the compensation pool but is it is taking its toll on production levels. Ocado’s deal with Morrisons helped to increase the former’s revenue, but was not enough to stop it delivering a loss for 2013.
The FTSE 100 is currently down 27 points, but there are deeper losses in Germany where the DAX has dropped 100 points, or 1.1%.
The Treasury Select Committee is grilling the Financial Conduct Authority’s John Griffith-Jones and Martin Wheatley about the regulator’s performance since taking over from the FSA. My colleague Sean Farrell is following events:
Treasury cttee chair Andrew Tyrie not convinced of FCA enthusiasm for reforming sales-based pay at banks. Wheatley says takes it seriously.
— Sean Farrell (@farrell_s) February 4, 2014
FSA CEO Wheatley says sounds disproportionate to extend EU bonus cap beyond cap to entire financial industry.
— Sean Farrell (@farrell_s) February 4, 2014
FSA CEO Wheatley says FCA will consult later this year on whether its remuneration code needs to be extended.
— Sean Farrell (@farrell_s) February 4, 2014
FSA CEO Wheatley says was quite surprising that lessons hadn’t been learnt by Lloyds when FCA imposed £28m fine last year.
— Sean Farrell (@farrell_s) February 4, 2014
Mark Garnier MP accuses FCA CEO Wheatley of “postmodern Nuremberg defence” for Lloyds sales staff: “I was only obeying bonus incentives.”
— Sean Farrell (@farrell_s) February 4, 2014
Very long to and fro between Tyrie and Wheatley on if a product that requires advice can be sold on the web without “human intervention”.
— Sean Farrell (@farrell_s) February 4, 2014
FSA CEO Wheatley says will check on execution of retail distribution review by the end of this year.
— Sean Farrell (@farrell_s) February 4, 2014
Why Australia should fear a US government default
By: All Things Forex
Published October 7, 2013, in Forex Outlook
In May, the US treasury was able to employ some “extraordinary measures” to keep borrowing. These measures run out on 17 October. If the USS America goes down, little HMAS Australia will find it tough not to get sucked into the vortex…
The current US government shutdown has little impact on Australia, but if the US hits the debt ceiling Australia will feel the consequences of a bitterly partisan US political system.
One of the more ironic aspects of the US government shutdown is that if it goes on for much longer, the government won’t be able to calculate its economic impact because it won’t be able to collect the data.
Last Friday was supposed to be the most recent release of US jobs figures, and yet those logging on to the BLS website would have seen this:
During the shutdown the BLS won’t be able to collect the data to calculate the employment figures. Similarly the Bureau of Economic Analysis is also shut down, which rather makes collating data for the GDP figures a tad tricky.
But for Australians the big issue is not so much the shutdown. Costly as it is to the American economy – wiping about 0.1% of GDP growth each week – it does not have a great direct impact outside its borders. After all there are not many Australians employed by the US government or about to go to a US national park this weekend. The real bitter pill for the rest of the world (and US) comes in a couple weeks when the US reaches its debt ceiling.
The debt ceiling is often lazily referred to as the US government’s credit card limit, but it is not about giving the US government the right to spend more, but the ability to borrow to pay off spending it has already undertaken.
The debt ceiling is currently at $US16.699tn, and was actually reached in May but the US treasury was able to employ some “extraordinary measures” to keep borrowing. These measures will run out on 17 October.
At that point the US will no longer be able to borrow money to pay its bills. In the short run that is OK, because the US government gets enough cash from tax revenue to cover its expenses. But on 1 November it gets a bill for US$67bn for social security, medicare and veterans benefits. By 15 November the US government will be short about US$108bn. And that means defaulting on its payments.
No one really knows what will happen if the debt ceiling is not raised. Views range from, it’ll be fine, to it’ll be Armageddon. The US Treasury for its part has put out a paper that paints a pretty scary picture.
After looking at what has occurred in 2011 when the US nearly reached the debt limit, it concluded that a debt default “could have a catastrophic effect on not just financial markets but also on job creation, consumer spending and economic growth”.
It also noted that “many private-sector analysts believing that it would lead to events of the magnitude of late 2008 or worse, and the result then was a recession more severe than any seen since the Great Depression”.
And just in case you are a glass-half-full kind of person and you still have some optimism, the report ends on this less than upbeat note: “Considering the experience of countries around that world that have defaulted on their debt… [the] consequences, including high interest rates, reduced investment, higher debt payments, and slow economic growth, could last for more than a generation.”
Cheery.
Thus far the markets have been rather sanguine. The US Treasury 10-year bond yields are lower now than they were a month ago – suggesting investors are not too spooked about the long-term US economy. There is also a sense that investors are a bit jaded – the debt ceiling fight is now becoming an annual event.
But in the past few days, investors have become very worried about holding US treasury bonds which mature in the next month.
The spread of the six-month to one-month treasury bonds fell off a cliff, to the point where investors are now demanding a higher return for buying a one-month US treasury bond than for a six-month.
Should the default actually occur you could expect those jaded investors would suddenly get very alert. A US government default would put the world economy into uncharted waters. Around 87 % of all foreign exchange transactions involve US dollars. If the US government can no longer guarantee it will pay its bills (even for a short time), that rather upsets the integrity of the entire system.
In 2011 when the debt ceiling was almost breached, the US’s credit rating was downgraded to AA. It hurt US confidence, put a big hand brake on economic growth, and the turmoil on financial markets reduced American household wealth by around US$2.4tn.
For Australia, in 2011 our dollar at the time soared to US$1.10 as the American currency lost value. With the value of our dollar already rising the last thing our manufacturing sector needs is for the dollar to be given a boost.
For the moment most expect congress to back down and raise the debt ceiling (or perhaps even suspend it for a few more months like they did last year).
But Australians should hope that the US gets its act in order soon. While it is nice to think that we are now bound to China, a look over the past 20 years shows that aside from extraordinary circumstances – such as the dotcom bubble and September 11 attack, and our mining boom in 2006 – Australia and the US’s GDP growth is quite closely linked.
Our economy is like a dinghy in the ocean of the international economy. If the US scuttles itself though political intransigence, without another mining boom, little HMAS Australia would find it tough not to get sucked into the vortex as USS America goes down.
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