European lenders are on track to issue a record €100bn of new “bail-in” debt in 2019 to meet tougher post-crisis rules designed to protect taxpayers from footing the bill for future bank failures. Banks in Europe had already issued €94bn of “senior non-preferred” debt by early December, according to figures prepared for the Financial Times by S&P Global Ratings, and are expected to pass the €100bn mark by the end of the year. Senior non-preferred (SNP) bonds are debt instruments designed to prop up banks in a future financial crisis. They can be converted to equity or “bailed in” if a bank’s losses wipe out its capital buffers.
Wall Street hit fresh highs on Thursday over raised hopes that an interim trade deal between Beijing and Washington was still on course to be signed in January. “The deal is done,” said Donald Trump on Christmas Eve. “It’s just being translated right now.” The day after the president's remarks, it was reported that a Chinese foreign ministry spokesman, Geng Shuang, had said the two sides were in close touch about a signing ceremony. The anticipation of a ceasefire to the protracted trade war helped the three major US stock indices reach new records.
An end of year sell-off in global bond markets has helped shrink the pile of negative-yielding debt by $6tn since the summer peak, in a sign that recession fears are abating. Tentative signs of an emerging US-China trade deal last week fed a drop in bond prices that pushed Japan’s 10-year yield above zero for the first time since March, while 10-year US yields climbed to a five-week high of 1.92 per cent. Yields in the eurozone also rose sharply. The market moves pushed the total amount of negative yielding debt from a peak of $17tn in the summer to just above $11tn — the lowest since June. An outburst of guarded optimism on trade talks has dulled the appeal of government debt that investors treat as a safe retreat in times of stress.
US President Donald Trump’s deal to revamp the Nafta trade agreement with Canada and Mexico was approved with a wide bipartisan majority in the House of Representatives on Thursday, clearing the main hurdle on the path to ratification. The broad support for the agreement, called USMCA, marks a big legislative victory for Mr Trump just a day after lawmakers from the same body voted on party lines to impeach him for abuse of power and obstruction of Congress. Democrats also claimed it is as a victory, after successfully securing changes to the original deal following months of talks with Robert Lighthizer, the US trade representative, to boost the enforcement of labour and environmental standards, and remove provisions that critics feared would lead to higher drug prices.
Donald Trump became the third president in US history to be impeached when the House of Representatives charged him with using the power of his office for personal gain in a partisan vote that could be the defining moment of his presidency. The decision on Wednesday night paved the way for a trial in the Senate, where Republican control makes it unlikely that Mr Trump will be removed from office — or that the tribal divisions afflicting American society will soon heal. However, Nancy Pelosi, Democratic speaker of the House, sparked confusion about what comes next by suggesting that she might not immediately send the articles of impeachment to the Senate, in a possible effort to gain leverage over Republican Senate leaders who have favoured a trial without testimony from witnesses.
Unilever has warned it will miss its full-year revenue growth targets and suffer further weakness next year, putting pressure on chief executive Alan Jope to revive the consumer goods group as his first year in the job comes to an end. Blaming weak sales in the US and India, two of its biggest markets, the maker of Dove soap and Ben & Jerry’s ice cream said it expected underlying sales growth for 2019 and the first half of 2020 to be “slightly below” 3 per cent. That compared with the 3 to 4 per cent the company had predicted earlier. Little improvement was forecast for next year as a whole, with Unilever guiding that underlying sales growth for the full year would remain stable at 3 to 4 per cent, instead of improving to 3 to 5 per cent.
Sterling has surrendered its post-election gains as Boris Johnson signalled he will seek to pass legislation that could cause a “cliff-edge” Brexit at the end of next year. The currency slid as much as 1.3 per cent to $1.3158, bringing it below the $1.3173 level the pound traded at just before an exit poll projected Mr Johnson’s election victory. It has tumbled 2.6 per cent from the peak of around $1.35 that was reached on Thursday night after it became clear Mr Johnson had secured a sweeping victory. The pound cut its losses in choppy trading later in the morning, leaving it down 1 per cent at $1.319. It was off 1.1 per cent against the euro at €1.1828. London’s FTSE 250 index, which includes medium-sized UK companies that are considered to be sensitive to shifts in the domestic economy, dropped more than 1 per cent in its worst day since October after sharp rises in the two trading days following the poll.
Boeing’s board is discussing whether to cut back or suspend production of the 737 Max passenger jet, raising the possibility that the US aircraft manufacturer will face another round of charges before regulators clear the plane to resume flying. A scheduled end-of-year board meeting began in Chicago on Sunday and was set to continue on Monday. Directors had announced no decision as of Sunday evening. The Max has been grounded since March after two crashes that killed 346 people. Boeing’s hopes of when it might return to service have been repeatedly pushed back as the US Federal Aviation Administration and regulators from Europe to China raise fresh questions about its proposed fixes. The company cut its production of the Max by a fifth in April, to 42 planes per month, triggering billions of dollars of charges. It has disclosed a $5.6bn hit to profit for customer compensation and a further $3.6bn in additional cost to the 737 programme.
Boris Johnson’s Brexit election gamble paid off spectacularly on Friday as the Conservative party secured a crushing victory, cutting a swath through Labour’s provincial heartlands. The Conservatives won their biggest majority at Westminster since 1987, delivering an electoral earthquake that left the opposition parties Labour and the Liberal Democrats seeking new leaders. Mr Johnson described the result as a “powerful new mandate” to deliver Brexit. Jeremy Corbyn announced he would not contest another election as Labour leader after the party’s “very disappointing” defeat, while Lib Dem leader Jo Swinson lost her East Dunbartonshire seat to the Scottish National party. A BBC projection at 6am gave Mr Johnson a majority of 78, with the Conservatives taking 364 seats (up 47), vindicating his decision to seek a bigger majority. Labour was heading for 203 seats (down 59), SNP 48 (up 13) and the Lib Dems 12 (down one).
At his news conference on Wednesday, Jay Powell was asked what he learnt in 2019. Almost smiling, the Federal Reserve chairman, said: “You know, it’s too long of a question. I don’t know how to get after that. There’s a lot of learning that comes in from the economy every year.” In October, the Fed described its three interest rate cuts since July as an insurance policy, protection for US growth against trade frictions, low inflation and a global downturn. That would suggest that, once tensions eased, it would raise rates again. But now, with those cuts in place, the US central bank made it clear at its meeting on Wednesday that the current policy rate of 1.5-1.75 per cent is no longer a temporary accommodation. It is a new strategy. Having watched inflation fail to rise this year despite easier policy and a strong labour market, the Fed is going to keep rates where they are until inflation picks up. As Mr Powell put it, he would prefer to wait until he sees “a significant move up in inflation that’s also persistent”.
Saudi Aramco shares rallied 10 per cent as the state oil company began trading on Riyadh’s Tadawul stock exchange, giving the group a market value of nearly $1.9tn. Wednesday’s stock market debut marks the culmination of a nearly four year process since Crown Prince Mohammed bin Salman first disclosed plans for a listing. After a process marked by delays and pared ambitions, Saudi Aramco raised $25.6bn in the largest ever IPO surpassing the $25b raised by China’s Alibaba when it debuted on Wall Street in 2014 and giving it a valuation of $1.7tn. Saudi Aramco’s shares rose by the maximum level of 10 per cent in early dealings to 35.2 riyal, confirming its position as the world’s most valuable company with a market capitalisation of nearly $1.9tn. That is more than the combined market capitalisation of the five biggest international oil companies.
Russia will be banned from the Tokyo Olympics and football World Cup in 2022 after the World Anti-Doping Agency imposed a four-year exclusion for failing to comply with drugs testing rules. Wada voted to ban Russia from all big sporting events for tampering with test result data that were then handed over for compliance checks this year. The doping agency only reinstated Russia in 2018 after a three-year sporting ban during which the country was not allowed to test its own athletes or participate in the Olympics under its own flag. “For too long, Russian doping has detracted from clean sport,” Craig Reedie, Wada president, said in a statement on Monday. “Russia was afforded every opportunity to get its house in order and rejoin the global anti-doping community for the good of its athletes and of the integrity of sport, but it chose instead to continue in its stance of deception and denial.”
Hedge funds exacerbated the recent turmoil in the repo market with their thirst for borrowing cash to juice up returns on their trades, according to the Bank for International Settlements. Investors, bankers and policymakers were left stunned in September when the cost of borrowing cash overnight in exchange for high-quality collateral such as US government debt shot higher, eventually forcing action from the Federal Reserve to keep the market functioning smoothly. In the aftermath, attention focused on the role played by banks, which had become reluctant to lend cash into the market despite the higher interest rates on offer. While the BIS acknowledged in its quarterly assessment of the health of global markets, released on Sunday, that the pullback by banks was a significant factor in the shake-up, it also said that cash-hungry hedge funds had amplified the dislocation.
Germany’s sprawling industrial sector is suffering its steepest downturn for a decade, underlining how the engine of the eurozone’s biggest economy is sputtering. Industrial output, which includes Germany’s dominant factory sector, dropped 5.3 per cent in October from the same month in 2018, according to the Federal Statistics Office. The figures suggest that the German industrial slowdown is likely to weigh on overall eurozone growth in the fourth quarter. Combined with data published this week showing industrial orders fell sharply in October, and with most manufacturers expecting a further shrinkage in November, the figures suggest that the two-year downturn in German manufacturing is nowhere near close to ending. “Far from bottoming out, Germany’s industrial recession may be getting worse,” said Andrew Kenningham at Capital Economics. “The latest data support our view that a recession is still more likely than not in the coming quarters.”
Saudi Aramco has raised a record $25.6bn in its initial public offering, capping a fraught journey to the public markets for the world’s largest oil company. The money raised by the state-owned producer breaks the record set by Chinese ecommerce giant Alibaba in 2014, but gives the company a valuation that falls short of the $2tn coveted by Crown Prince Mohammed bin Salman. The IPO is at the heart of Prince Mohammed’s ambitions to transform an economy still dependent on oil at a time when the global shift to cleaner fuels is accelerating. But in the almost four years since the government first disclosed its plans for the flotation, hopes for a foreign listing have fallen by the wayside and the offering in Riyadh will be smaller than originally intended. Saudi Aramco on Thursday sold shares for 32 Saudi riyals ($8.53) each, the top of the range set out last month, the company said. That will give the company a market valuation of $1.7tn when the shares start trading. The listing is oversubscribed, soliciting bids of nearly 4.7 times what Riyadh said it wanted.
The pound has risen to its highest level since May against both the dollar and euro, notching up a second day of strong gains as traders bank on a Conservative victory in the UK general election. Against the dollar, sterling was up 0.8 per cent and approaching $1.31 on Wednesday, its highest level under prime minister Boris Johnson. The pound jumped 0.7 per cent against the euro, reaching its highest level since May 2017 with £0.8455 needed to buy a unit of the single currency. The currency has risen 1.2 per cent over the past two days against the buck, its biggest such gain since Mr Johnson’s Brexit deal was unveiled in mid-October. Dean Turner, an economist at UBS Wealth Management, said: “As we write, the election is Boris Johnson’s to lose.
Larry Page and Sergey Brin, the Stanford students who founded Google as a research project 21 years ago, are stepping back from their day-to-day roles at technology holding company Alphabet, bringing the curtain down on one of the most successful management double-acts in history. However, the duo, who between them control more than 51 per cent of the votes in Alphabet through a special class stock, will “continue their involvement as co-founders, shareholders and members of Alphabet’s board of directors”, the company said. The shake-up will see Sundar Pichai, who took over management of the Google internet business four years ago, also take on the chief executive position at Alphabet. As head of the search business, he already had authority over operations that accounted for more than 99 per cent of Alphabet’s revenues.
The Trump administration on Monday proposed the imposition of 100 per cent tariffs on up to $2.4bn of French goods, including champagne, after concluding that the country’s digital services tax unfairly discriminated against American technology companies. The plan came at the end of a day marked by escalations in trade tensions between the US and key allies, starting with an announcement that Washington would restore tariffs on metals from Argentina and Brazil to punish them for their currency policies. In addition, the US trade representative’s office said it was looking at broadening a range of punitive tariffs on EU products, including goods from the UK, France, Spain and Germany, because of subsidies to Airbus, the aircraft maker, that have been judged as illegal by the World Trade Organization.
Joseph Muscat, Malta’s embattled prime minister, has announced his intention to step down, as a probe into the murder of journalist Daphne Caruana Galizia stoked mounting public anger over alleged high-level official corruption. In a televised address to the nation on Sunday evening, Mr Muscat said he would continue serving as prime minister until a new Labour party leader was selected in a process set to start on January 12. Mr Muscat’s announcement came hours after thousands of Maltese citizens marched through the streets of the capital Valletta, calling for his resignation. Marchers carried placards reading “Killer government”, “Mafia” and accusing Mr Muscat of having “blood on [his] hands”. In addressing the nation, Mr Muscat said he had promised two years ago that justice would be done in the case of the murder of Daphne Caruana Galizia.
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March 2021
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