Wednesday, October 28, 2015

Hint of US rate rise in December; Scandal hits Volkswagen but sales hold up; Record cash profit for ANZ

1 Hint of US rate rise in December (Rupert Neate in The Guardian) The Federal Reserve on Wednesday kept interest rates unchanged at their record low of near-zero, but raised the likelihood of a rate hike in December by dropping previous warnings about the fragility of the global economy.

Fed policymakers voted to leave rates at 0-0.25% – where they have been for the seven years since the financial crisis. However, the bank’s Federal Open market Committee (FOMC), which sets the rate, significantly raised the prospect of a historic rate rise at its next meeting in December by removing cautious statements about unstable international markets could adversely effect the US economy.

In September, following concerns about the health of the Chinese economy, the committee said: “Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.”

This was modified on Wednesday to: “The committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced but is monitoring global economic and financial developments.”

The committee specifically pointed towards the possibility of raising rates at its December meeting – the last of 2015. “In determining whether it will be appropriate to raise [rates] at its next meeting, the committee will assess progress toward its objectives of maximum employment and 2% inflation,” it said in the statement.

The Fed warned that the pace of job gains has “slowed”, while the unemployment rate held steady. It also repeated its warning that it wants to be “reasonably confident” that currently ultra-low inflation will rise to its 2% target before it raises rates. Other central banks around the world are closely watching the Fed’s process and a decision to increase rates is likely to lead to rates being raised across the world.

2 Scandal hurts Volkswagen but sales hold up (San Francisco Chronicle) Volkswagen lost 1.67 billion euros ($1.83 billion) in the third quarter as it set aside 6.7 billion euros to pay for recalling and fixing cars that were rigged to evade U.S. diesel emissions tests.

While the German carmaker warned Wednesday that operating profit this year would be "down significantly," it indicated that sales would prove resilient. The company stuck to its prediction that unit sales would be on a level with last year's record 10.14 million.

Volkswagen, based in Wolfsburg, Germany, had already announced the set-asides for the recalls, so market analysts expected the quarterly loss, the company's first in over a decade. The result was in fact not as bad as analysts' expectations for a loss of 2.11 billion euros, as compiled by financial data provider FactSet. Sales revenue rose 5.3 percent to 51.5 billion euros.

Analysts say the impact will likely be several times larger than the set-asides, including fines, recall and repair costs, and possible lost sales due to damage to the company's reputation. The scandal became known on Sept. 18, near the end of the quarter, so any impact on quarterly sales was slight.

The US Environmental Protection Agency says Volkswagen installed software on 482,000 cars from model years 2009-2015 that disabled diesel engine emission controls when the vehicles were not being tested. Up to 11 million cars worldwide have the deceptive software.

The scandal spoiled what would otherwise have been a profitable quarter, with 3.2 billion euros in earnings excluding interest, taxes and the scandal set-asides. The scandal has cost Volkswagen the position as the biggest automaker in the world by sales, which Toyota has regained.

3 Record cash profit for ANZ (BBC) One of Australia's biggest lenders, ANZ, has posted a record annual cash profit of 7.2bn Australian dollars ($5.1bn). Analysts said the closely watched cash profit measure, which strips out some one-off items, would be welcomed by investors despite expectations for profits of A$7.29bn.

The result for the year to September marks a 1% rise on cash profits from a year earlier. The lender, which is the nation's third-biggest bank by market value, also said its after-tax profit rose 3% to A$7.5bn. The results follow National Australia Bank's full-year profit report, which failed to impress investors after it missed expectations.

Australia's banking sector, particularly the so-called top four, which includes National Australia Bank, Commonwealth Bank of Australia and Westpac, is regarded as being highly profitable. The sector made it through the global financial crisis relatively unscathed, but is now facing tighter regulatory controls. Banks have been told to increase the amount of capital they put aside in order to protect their mortgage businesses.

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