1 Asian shares fall as Saudi Arabia rules out
production cuts (Straits Times) Asian shares retreated on Wednesday as a
nascent recovery in the oil market lost momentum after Saudi Oil Minister Ali
Al-Naimi effectively ruled out production cuts by major producers anytime soon.
MSCI's broadest index of Asia-Pacific shares outside
Japan extended earlier losses to fall 1.1 per cent as of 10:46 am Singapore
time, slipping further from Monday's six-week high. Japan's Nikkei shed 0.7 per
cent on the drop in oil prices and as the stronger yen weighed on exporters.
Chinese shares opened higher but surrendered the gains, with the CSI 300 index
down 0.1 per cent and the Shanghai Composite little changed.
Mr Naimi told oil executives that markets should not
view the agreement by four major oil producers to freeze at the January level
as a prelude to production cuts. While Mr Naimi said he was confident more
nations would join the pact, Iran was seen as unlikely to agree to the output
cap, which does not allow Iran to regain the market share it lost during
sanctions.
The toll from low oil prices is also spreading to
banks that have exposure to the energy sector, as roughly a third of US shale
oil producers are at high risk of slipping into bankruptcy this year, according
to a study by Deloitte. JP Morgan, the largest US bank by assets, said it will
increase provisions for expected losses on energy loans by $500 million, or
more than 60 per cent of its existing reserves.
2 Bank of England may cut rates to zero (Phillip
Inman in The Guardian) The Bank of England could cut interest rates to zero,
but will seek to avoid following Sweden, Denmark and the eurozone by setting
negative rates to bolster growth and inflation.
Mark Carney, the Bank’s governor, said Threadneedle
Street had “no intention and no interest” in implementing negative interest
rates and would adopt the full range of the Bank’s other powers to deal with a
downturn in the economy.
He said: “If we were in a position where the economy
needed additional stimulus ... we could cut interest rates towards zero. We
could engage in additional asset purchases, including a variety of assets. Carney
said the world economy had entered a period of low growth and low interest
rates and was likely to be prone to financial shocks.
He added that Threadneedle Street might need to
respond with additional stimulus measures, but to protect the profitability of
the UK’s banks and building societies, the monetary policy committee (MPC)
would avoid cutting from the current base rate of 0.5% to below zero.
The message that negative interest rates would be a
last resort comes before an expected push by the European Central Bank to
deploy the measure on a bigger scale at its next meeting to increase lending
and growth in the eurozone. Japan and Switzerland have also adopted negative
interest rates in recent months.
3 As mining cools, Australia turns to agriculture
(Karishma Vaswani on BBC) Asia has become a major buyer of Australian
agricultural products. Australia sold a record $600m of beef to China in 2015,
and that growth shows no signs of slowing, with China's appetite for beef
expected to soar to 2.2 million tonnes by 2025.
The push into agriculture couldn't come soon enough.
Recent reports forecast a worrying economic future for Australia, despite it
having had 25 years of consecutive growth.vThe Committee for Economic
Development of Australia (CEDA) says Australia is facing hazards it hasn't seen
in its economy in more than 20 years.
The end of the mining boom, and a dependence on
China are both reasons why Australia is suffering, which is why the government
is so keen to keep agricultural exports to Asia growing. But Australia's
agricultural exports are only worth a third of what coal and iron bring to the
economy.
Even if Australia tried to be the food bowl of Asia,
it only produces food enough to feed its own country and another 80 million
people. That's not enough to feed neighbouring Indonesia, let alone the whole
of Asia. Australian producers say though that they're not trying to satisfy the
entire region's needs - it's just the 1% or 2% at the top who they want to sell
their premium products to.
Australia has been burned before by hitching its
fortunes to Asia, and in particular to China. First Australia sold coal and
iron to the Chinese, now it is trying to sell lettuce and beef. But as Asia
slows down, that could hurt farms and feedlots here in the future.
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