The Federal Reserve cut US interest rates by 25 basis points for the third time this year but signalled that it has finished easing monetary policy for the time being, pending clearer economic data. The US central bank on Wednesday said that uncertainty on the economic outlook justified its latest cut but chairman Jay Powell said that a preliminary US-China trade deal and lower risk of a no-deal Brexit had the potential to increase business confidence. The pause does not mean the Fed has any plans to resume the rate increases it pursued until the end of 2018, Mr Powell said at a press conference. “I think we would need to see a really significant move up in inflation that’s persistent before we would consider raising rates to address inflation,” he said. After a two-day meeting in Washington, the Fed’s rate-setting committee made two significant changes to the language of its monetary policy statement. It said it would “assess the appropriate path” for rates instead of saying it would “act as appropriate to sustain the expansion”.
The board of France’s PSA, owner of Peugeot, has given chief executive Carlos Tavares approval to launch a full-scale merger with Fiat Chrysler Automobiles, which would create one of the world’s largest carmakers. The FCA board is expected to follow suit, paving the way for the companies to pursue a deal that would create a combined group with a market value in excess of €44bn, say people familiar with the talks. An announcement could come as soon as Thursday morning. The plan is an all-stock merger in which Mr Tavares runs the business and John Elkann — the scion of Italy’s Agnelli family, which controls FCA — becomes chairman. Mr Tavares will have an initial mandate of five years. According to people familiar with the matter, the board would comprise six members appointed by PSA, including Mr Tavares, and five members appointed by FCA.
Deutsche Bank’s fixed income trading unit trailed well behind rivals during the third quarter in the latest sign of the steep hurdles Germany’s biggest lender faces in its efforts to turn round the fortunes of its investment bank. Revenue in fixed income trading — by far the biggest remaining unit of Deutsche’s downsized investment bank — fell 13 per cent year-on-year to €1.23bn. The decline is further evidence that Deutsche is falling behind its large US rivals which on average reported an 11 per cent increase in the metric. Deutsche blamed the decline in fixed income trading, which includes bonds and currencies, on low market volatility in foreign exchange markets. It also pointed to “business restructuring and challenging market conditions” in its rates unit, which handles sovereign bonds and other related products, and emerging markets debt which triggered “some risk management losses”.
ByteDance, the $75bn Chinese start-up that owns the short-form video app TikTok, is eyeing an initial public offering in Hong Kong as soon as the first quarter of next year, according to two people briefed on its plans. The seven-year-old company, which also owns the Chinese news app Jinri Toutiao, has chosen Hong Kong over New York, despite the recent turmoil in the territory. The benchmark Hang Seng index has lost about 11 per cent from its high earlier this year amid mass street protests and civil unrest. ByteDance’s valuation hit $75bn in October 2018 when it closed a $3bn funding round led by SoftBank, doubling its worth from a year earlier. An IPO would crystallise big gains for early investors such as the Chinese arm of Sequoia Capital and would also help SoftBank at a time when the value of its investments in companies such as Uber and WeWork has sharply fallen. One of the few Chinese companies to have made significant inroads into international markets, ByteDance is facing increasing political pressure. In India, politicians have accused TikTok of inciting racial hatred and spreading pornography. The app was briefly banned earlier this year.
Abu Bakr al-Baghdadi, the leader of the militant group Isis, was killed on Saturday in a US special forces raid in north-western Syria, President Donald Trump announced from the White House on Sunday. “The United States brought the world’s number one terrorist leader to justice,” Mr Trump said at a televised press conference. “Abu Bakr al-Baghdadi is dead.” The killing of the militant leader, who for years unleashed terror across Syria, Iraq and further afield, came just weeks after Mr Trump faced bipartisan criticism for withdrawing US forces from north-east Syria and allowing Turkey to invade. Opponents of the pullout say it betrayed the Syrian Kurds who had been US allies in the fight against Isis and that it could allow the jihadi group to surge back after its defeat and expulsion from most of the territory it held in Syria and Iraq.
Amazon’s third-quarter profits fell from a year ago as it ramped up spending on its next-day delivery service, the first time the ecommerce group has suffered an annual earnings drop in more than a year. The drop in third-quarter operating income, to $3.2bn from $3.7bn last year, triggered a sharp sell-off in after-hours trading, with shares falling as much as 9 per cent, wiping about $80bn from its stock market value. Jeff Bezos, the Seattle-based group’s chief executive, defended his decision to invest heavily in Amazon’s expanding one-day delivery service, which allows subscribers to its Prime service to receive more than 10m items in 24 hours. “It’s a big investment, and it’s the right long-term decision for customers,” Mr Bezos said, insisting the investment was part of a “ramping up to make our 25th holiday season the best ever for Prime customers”.
Tesla shares soared 20 per cent in after-hours trading after the electric car pioneer posted a net quarterly profit, surprising analysts, issued a bullish outlook and said its Model Y sport utility vehicle was “ahead of schedule” and would launch next summer. The Fremont, California-based group’s net profit in the third quarter was $143m, providing huge relief to investors following a cumulative loss of $1.1bn in the first half of the year. Tesla posted adjusted earnings per share of $1.86, better than even the most bullish of Wall Street analysts’ forecasts, which ranged from a loss of $1.25 a share to a gain of $0.34. Third-quarter revenues, however, were $6.3bn, below expectations of $6.5bn and down from the $6.8bn it recorded a year ago. Tesla said “the majority” of this decrease reflects how the “percentage of leased vehicles has tripled” from a year ago.
Masayoshi Son, SoftBank’s billionaire founder, vowed on Tuesday to “double down” on its investment in WeWork as he confirmed plans for a $9.5bn rescue that will hand up to $1.7bn to Adam Neumann, the crisis-hit group’s cofounder. In a statement on Tuesday evening in New York, SoftBank said it would “accelerate” WeWork’s path to profitability and positive free cash flow after years of heavy losses that left the New York co-working company with just a few weeks worth of cash when a planned initial public offering collapsed last month. Mr Neumann — the WeWork cofounder whose ambition of disrupting the global office market helped convince SoftBank to commit $10.65bn to the company before its aborted attempt to go public sank its valuation from $47bn to $8bn — will cede the high-voting shares that had given him control of the company.
Justin Trudeau’s Liberal party survived a multipronged challenge from both the left and right in Canada’s general election on Monday but he will return to power as the head of a minority government. In what is widely considered a rebuke of his first term, Mr Trudeau’s Liberals won or were leading in 155 electoral districts, falling 15 seats short of winning a majority in the House of Commons. In the 2015 poll, the Liberals won a majority with 184 seats. The prime minister’s chief rival, the Conservative party led by Andrew Scheer, won 122 seats, which was an improvement on its 2015 result but short of what it had been expecting. A week ago, some polls had the Conservatives winning enough votes to lead a minority government. “The Liberals will be pleasantly surprised by this outcome,” said Nelson Wiseman, a professor of political science at the University of Toronto. “The Conservatives can only be depressed. A lot of people felt uncomfortable with Scheer, and Trudeau was the beneficiary of that.”
Protesters flooded onto the streets in towns across Lebanon on Sunday on a fourth day of massive demonstrations calling for the resignation of the power-sharing government headed by Saad al-Hariri, prime minister. Demonstrators blocked roads and set tyres aflame in a widespread outburst of anger against high prices and the political elite who are perceived as kleptocratic and insensitive to citizens’ problems. Four ministers from the Maronite Christian Lebanese Forces party withdrew from the government on Saturday, adding to the pressure on Mr Hariri. He has blamed his partners in government for stalling reforms aimed at unblocking $11bn of international aid. On Friday Mr Hariri gave his partners in government a 72-hour ultimatum to agree a package of reforms to ward off economic collapse. Otherwise, he said, he would take unspecified measures — a threat which was widely interpreted as a hint that he would resign.
Boris Johnson did what he promised not to do on Saturday night: he formally requested a Brexit extension until January 31 2020 in three separate letters dispatched to Brussels. The first letter asked for an extension of Article 50 talks as required by the so-called Benn act, but while it was attributed to the prime minister of the United Kingdom it was not signed by Mr Johnson. The second was a photocopy of the five pages of the Benn legislation, which required him to apply for the extension until the end of January 2020 if MPs had not approved his exit deal by October 19. In a third letter, which was signed by Mr Johnson to Donald Tusk, president of the European Council, the prime minister said he did not favour an extension as it would “damage the interests of the UK and our EU partners”.
China’s economy grew at 6 per cent in the third quarter of 2019 compared with a year earlier, its slowest pace in about 30 years, delivering another blow to global growth and underlining many of the challenges facing President Xi Jinping. The country’s trade war with the US, slowing income growth and cooling manufacturing investment took a toll on the world’s second-largest economy between July and September, according to the figures released by the National Bureau of Statistics on Friday. The gross domestic product data came in below analysts’ expectations of 6.1 per cent and revealed that China’s growth was running at a level comparable with the late 1980s. However, the overall size of the economy is now far larger and, by many accounts, cannot continue expanding at double-digit rates as it did until this decade. “I think 6 per cent is a stress test to the market,” said Zhou Hao, a senior economist at Commerzbank. “On the one hand, China seems to be willing to accept somewhat lower growth and is sending a signal that 6 per cent is not an untouchable bottom line.”
Boris Johnson was locked through Tuesday night in a race against time to secure a Brexit deal, after EU chiefs warned him that unless he made new concessions he would be forced to accept an extension to his October 31 exit deadline. The British prime minister spent the eleventh hour haggling with Arlene Foster, leader of Northern Ireland’s Democratic Unionist party, over a big cash payment for the region to help secure her support for the deal taking shape in Brussels. One person briefed on the negotiations said the DUP was asking for “billions not millions” for Northern Ireland. Mr Johnson held a series of meetings with Conservative Eurosceptic MPs and the DUP to persuade them to accept a deal that would impose customs checks on goods entering Northern Ireland. British negotiators in Brussels were in constant contact with Number 10 to see how far they could go to meet EU demands, amid rising hopes that a deal could be concluded before the European Council meeting starting on Thursday.
Donald Trump moved on Monday to punish Turkey for its military advance into Syria, imposing sanctions on several Turkish ministers and departments and saying he would double tariffs on the country’s steel exports to 50 per cent. The US president has attracted sharp criticism from fellow Republicans, Democrats and US allies after making an abrupt shift in US foreign policy in the region this month by consenting to a Turkish military incursion in north-east Syria against US-backed Kurdish militias who have been instrumental in defeating Isis. Steven Mnuchin, US Treasury secretary, said on Monday evening that Mr Trump had signed an executive order, effective immediately, imposing sanctions on Turkey’s defence, energy and interior ministers, as well as the Turkish government’s defence and energy departments. Speaking outside the White House, Mr Mnuchin said “secondary sanctions” would apply to financial institutions that carry out transactions for the sanctioned individuals and departments.
Abhijit Banerjee, Esther Duflo and Michael Kremer have been jointly awarded the Nobel Prize in economics for their experimental approach to alleviating global poverty. Mr Banerjee and Ms Duflo — a couple both at work and in their private life — are professors at the Massachusetts Institute of Technology, while Mr Kremer is a professor at Harvard University. Ms Duflo, 46, becomes only the second woman to be awarded an economics Nobel, after the US economist Elinor Ostrom who won the prize in 2009 for her work on human co-operation. She is also the youngest-ever laureate in economics: the previous record was held by Kenneth Arrow, who was 51 when he was awarded the prize in 1972. The three, who often collaborate in their research, were awarded the prize — officially known as the Sveriges Riksbank Prize in memory of Alfred Nobel — for developing new, experimental research methods to identify the most effective policy interventions to fight poverty through field studies.
Facebook’s plans for a digital currency are coming under further pressure as global regulators step up their scrutiny of the struggling Libra project. In a letter to G20 finance ministers on Sunday, Randal Quarles, the head of the global Financial Stability Board, said that, with a “host of challenges” posed by global “stablecoins”, such as Libra, “possible regulatory gaps should be assessed and addressed as a matter of priority”. The concerns of the FSB, which represents all large financial centres in the world, centred around the fear that global digital stablecoins could become a substitute for domestic currencies. This, the letter said, created challenges including financial stability, consumer and investor protection, data privacy, money laundering, terrorist financing, fair competition, cyber security and tax evasion. The FSB, Mr Quarles said, would consult on global regulatory solutions next April with final proposals for global adoption to come in July 2020. Facebook will attempt on Monday to rally support for its digital currency, as executives tell the scheme’s remaining backers they will press ahead as planned.
The US and China are aiming to reach a trade war truce as early as this week, as they launched a new round of face-to-face negotiations with hopes that a limited agreement to resolve the dispute afflicting the world’s two largest economies was within striking distance. Speaking on the White House lawn as Thursday’s negotiations wrapped up, Mr Trump said: “We’re going to see them tomorrow, right here, and it’s going very well” Senior officials from both sides are looking to craft a ceasefire that would at least stave off higher tariffs on $250bn of Chinese goods due to kick in next week. If the talks make greater-than-expected strides, they could also result in a freeze on tariffs on a further $156bn of Chinese imports due in December — and roll back some existing US levies. People briefed on the negotiations said the package being discussed would involve additional US agricultural purchases by China, as well as some provisions on currency, intellectual property and market access that had been on the table earlier this year between the two governments. The thorniest issues in the trade relationship — which include industrial subsidies, digital trade, and technology transfer — are unlikely to be tackled at this stage, those people said.
The European Central Bank decided to restart its bond-buying programme last month over the objections of its own officials, a further sign of how the move has reopened divisions within the institution. The bank’s monetary policy committee, on which technocrats from the ECB and the 19 eurozone national central banks sit, advised against resuming its bond purchases in a letter sent to Mario Draghi and other members of its governing council days before their decision, according to three members of the council. The leaking of the confidential contents of the committee’s letter comes as opponents to Mr Draghi’s loose monetary policy fight a rearguard action to put pressure on Christine Lagarde for her to change course after she takes over at the ECB on November 1. It is one of the few occasions that the committee’s advice has not been followed in the eight years since Mr Draghi became president, a council member said. However, the committee’s opinion is not binding and has been ignored at least four times in as many years by the council, which is free to decide otherwise, an ECB official said. The ECB declined to comment.
The OECD has proposed a global shake-up of corporate taxation, overturning a century of rules that had allowed digital groups such as Facebook, Apple, Amazon, Netflix and Google to shift profits around the world to minimise their tax bills. The proposals, which were unveiled on Wednesday after months of behind-the-scenes negotiations, are aimed at extracting more corporate tax from large multinationals whether they are digital or own highly profitable brands, such as luxury goods makers or global car companies. The winners would be large countries including the US, China, UK, Germany, France, Italy and developing economies. These would see an increase in their rights to levy tax on corporate income earned from sales in their territories, while the companies themselves, tax havens and low tax jurisdictions such as Ireland would lose. The aim, the OECD said, was to create a new and “stable” international corporate tax system because “the current rules dating back to the 1920s are no longer sufficient to ensure a fair allocation of taxing rights in an increasingly globalised world”.
From the Italian Renaissance-style Lord & Taylor building on New York’s Fifth Avenue to the postmodernist landmark One Poultry in London, WeWork has swept up office space at an unprecedented rate since opening its first location in Manhattan less than a decade ago. But the shared office provider’s breakneck expansion is set for a sudden slowdown, cutting out a significant source of demand in the large urban property markets where it operates. In the aftermath of the company’s failed IPO, which prompted the demotion of its chief executive Adam Neumann and triggered fears of a cash crunch, there are already signs of problems brewing. Two landlords of large WeWork sites in London, who asked not to be named, said they would not sign new leases for the foreseeable future and were making contingency plans for their existing WeWork offices in the event of a restructuring. “It would not be prudent for us to do anything [new] with them until we see how the new management will operate,” one landlord said.
Brussels is questioning Facebook over potential financial risks posed by its Libra coin project as the EU prepares to overhaul regulation of digital currencies. The European Commission has asked Facebook and the Libra Association to respond to a series of questions on financial stability, money laundering and data privacy risks that could be posed by the project. The commission’s questionnaire, sent last week and seen by the Financial Times, is part of a drive by Valdis Dombrovskis, the EU’s financial services commissioner, to determine how projects such as Libra should be regulated in the EU, if fresh legislation is needed, and even whether Facebook’s coin proposal should be allowed to operate in the bloc. It comes at a time of mounting official pressure on Libra to explain to regulators how it plans to set up a digital currency that could be used by 2.4bn Facebook users. Last month, Libra’s founders were grilled by 26 central bank officials in the first big encounter between Facebook and regulators. In August, Brussels’ antitrust authority asked the company for answers over concerns that Libra will harm consumer choice.
Global stocks fell sharply on Wednesday, with the UK market having its worst day in more than three years, after poor US jobs data compounded weak manufacturing reports and geopolitical fears — a pile-up of risks that sets the stage for a rocky fourth quarter. The UK’s benchmark FTSE 100 closed 3.2 per cent lower, the largest one day fall since January 2016 and exceeding the decline that followed the UK referendum in June 2016. The US S&P 500 fell 1.8 per cent, and the tech-heavy Nasdaq closed down 1.6 per cent. The sell-off continued in Asia on Thursday morning. Japan’s Topix slid 2.1 per cent, on track for its worst day in almost two months, and Australia’s S&P/ASX 200 fell 2.2 per cent, setting up the bourse for worst one-day performance in seven weeks. Stocks in Hong Kong opened down 0.8 per cent. Markets in China and South Korea are both closed for public holidays. The sell-off suggests the growth concerns that have been pumping up bond markets this year are belatedly leaking into global stocks — a shift that many investors would view as an overdue correction.
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March 2021
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