Tuesday, January 31, 2017
End of tax-free living in Saudi Arabia; Apple returns to profit with iPhone 7; California plans sanctuary for immigrants
1 End of tax-free living in Saudi Arabia (The Guardian) Tax-free living will soon be a thing of the past for Saudis after its cabinet on Monday approved an IMF-backed value-added tax to be imposed across the Gulf following an oil slump.
A 5% levy will apply to certain goods following an agreement with the six-member Gulf Cooperation Council in June last year. Residents of the energy-rich region had long enjoyed a tax-free and heavily subsidised existence but the collapse in crude prices since 2014 sparked cutbacks and a search for new revenue.
Saudi Arabia is the world’s biggest oil exporter and the largest economy in the Arab region. It froze major building projects, cut cabinet ministers’ salaries and imposed a wage freeze on civil servants to cope with last year’s record budget deficit of $97bn. It also made unprecedented cuts to fuel and utilities subsidies.
The kingdom is broadening its investment base and boosting other non-oil income as part of economic diversification efforts and aims to balance its budget by 2020. The move is in line with an International Monetary Fund recommendation for Gulf states to impose revenue-raising measures including excise and value-added taxes to help their adjustment to lower crude prices which have slowed regional growth.
2 Apple returns to growth with iPhone 7 (BBC) Apple has reported its highest quarterly revenue, as the iPhone 7 helped it return to a growth in sales in the final three months of 2016. In its first full quarter since the iPhone 7's release, Apple reported net sales of $78.4bn, up 3% on the same period a year ago.
Chief executive Tim Cook said Apple had sold "more iPhones than ever before". It had also set new records for revenues from its Mac, Apple Watch and services divisions, he said. Apple had suffered three quarters in a row of falling revenue as intensifying competition, particularly from Chinese rivals, hit sales of its flagship iPhone.
The firm said it had sold 78.3m iPhones in the three months to 31 December, up from 74.8m a year before. It reported revenue of $54.3bn from iPhone sales, plus $7.2bn from the Mac, $5.5bn from the iPad, $7.1bn from services and $4.0bn from other products, including the Apple Watch.
However, Apple warned that iPhone sales would miss analysts' expectations in the current quarter. It suggested that customers were holding back on phone upgrades in anticipation of the launch of the tenth anniversary iPhone later this year.
3 California plans sanctuary for immigrants (San Francisco Chronicle) Democrats in the California Senate have ramped up their fight against President Donald Trump, advancing bills that would create a statewide sanctuary for people in the country illegally, provide money to pay lawyers for immigrants facing deportation and hamper any attempt to create a Muslim registry.
The moves in the nation's largest state — home to an estimated 2.3 million immigrants without legal authorization — came days after Trump launched his crackdown on immigration and sanctuary cities across the nation. The city of San Francisco sued Trump on Tuesday, claiming his executive order that would cut funding from sanctuary cities is unconstitutional and a "severe invasion of San Francisco's sovereignty."
San Francisco receives about $1.2 billion a year in federal funding for services that include housing, health and social services, and homelessness. In Sacramento, Democrats on the state Senate Public Safety Committee voted along party lines to prohibit state and local law enforcement from cooperating with federal immigration authorities.
California voted overwhelmingly against Trump in November, and Democratic legislative leaders and Gov. Jerry Brown have loudly vowed to resist the Republican president. Many of California's largest cities — including Los Angeles, San Francisco and Sacramento — already have sanctuary policies that prohibit police from cooperating with immigration agents.
The sanctuary legislation now goes to the Senate Appropriations Committee. It's unclear how it might fare if it reaches the Assembly. Speaker Anthony Rendon, D-Paramount, has resisted Trump's policies, but the Assembly also has a bloc of moderate lawmakers in swing districts who have balked at legislation favored by the more liberal Senate.
Monday, January 30, 2017
Volkswagen becomes top car maker; US justice head defies immigration ban; Trump moves to cut business regulations
1 Volkswagen become top car maker (Gwyn Topham in The Guardian) Volkswagen has become the world’s biggest car manufacturer, overtaking Toyota in the number of new vehicles sold in 2016 despite the damage it suffered in the diesel emissions scandal.
Toyota had been the biggest seller for the past four years but its 2016 sales total of just under 10.2m vehicles fell short of the more than 10.3m cars sold by VW.
General Motors is reporting its 2016 sales next week, but industry analysts said it had no chance of overtaking VW. GM was third behind VW last year and held the top spot in 2011, when Toyota’s production was disrupted by the Japanese earthquake and tsunami.
It marks the first time that the German manufacturer has become the global bestseller, a record it has achieved despite having being beset by scandal for rigging emissions tests for its diesel vehicles. Riding out prosecutions, fines and vehicle recalls in the US, the VW group – which includes the Audi, Porsche and Skoda brands – recorded an overall 3.8% rise from 2015.
A major contribution was booming sales growth of 12% in a year in China, where VW sells few diesel vehicles. But the figures suggest that VW’s brand has not been seriously damaged in the eyes of consumers.
Toyota, which had to recall millions of vehicles due to safety fears over faulty accelerator pedals in 2009-10, now says it is not concerned with maintaining pole position on sales. In a statement, the manufacturer said: “At Toyota, we are not focused on chasing volume. Our goal is to be No. 1 with consumers by engineering and producing ever-better cars.”
2 US justice head defies immigration ban (San Francisco Chronicle) Acting Attorney General Sally Yates, a Democratic appointee, says she's directed Justice Department attorneys not to defend President Donald Trump's executive order on refugees.
Yates said in a memo that she is not convinced that Trump's order is lawful, or that its defense is consistent with the department's obligation to "always seek justice and stand for what is right."
Yates was appointed deputy attorney general by President Barack Obama. She became acting attorney general once Loretta Lynch left the position. Her directive will be in place until she leaves the department, which will happen once the Senate confirms Sen. Jeff Sessions, Trump's pick for attorney general.
3 Trump moves to cut business regulations (BBC) President Donald Trump has signed an executive order designed to cut the number of regulations affecting US businesses. It is just the latest in a flurry of decisions made by President Trump in his first few days in office.
He signed the order in front of a group of business people, saying it was aimed at "cutting regulations massively for small business". It was the "biggest such act that our country has ever seen," he added.
Speaking in the Oval Office, he said he wanted to tell small business owners that the "American dream is back'' and that he would "create an environment for small business,'' by ending or limiting existing regulations. The president went on to say that a large proportion of the American workforce was employed by these firms, therefore: "We want to make life easier for these small business owners.''
Despite the president's emphasis on small businesses, the wording of the order does not mention them specifically, so the order will affect businesses of all sizes. Described as a "two-out, one-in" approach, the latest executive order asked government departments to request a new regulation and to specify two other regulations which they will drop.
Sunday, January 29, 2017
1 Microsoft beats Q2 forecasts (San Francisco Chronicle) Microsoft Corp. reported yet another quarter of stronger-than-expected results, thanks to its focus on online services and business software rather than its legacy Windows operating system.
Microsoft says it earned $5.2 billion, or 66 cents per share, in the final three months of the year, up from $5.02 billion a year earlier. Earnings, adjusted for non-recurring costs, came to 84 cents per share. The average estimate of 16 analysts surveyed by Zacks Investment Research was for 79 cents per share.
The software maker posted revenue of $24.1 billion in the period. Adjusted revenue was $26.1 billion, also topping Wall Street forecasts. Nine analysts surveyed by Zacks expected $25.2 billion.
As sales of Windows PCs decline, CEO Satya Nadella has been pouring money and resources into remote data centers that deliver the company's services online to smartphones, tablets and other devices. Businesses and government agencies are increasingly turning to such "cloud computing" services, which again helped boost Microsoft's revenue, just as it did in the previous quarter.
2 UK bankers’ exodus exaggerated (Simon Jack on BBC) Is the UK witnessing a sudden exodus of bankers in the wake of Theresa May's confirmation that the UK will be leaving the European single market? In a word, no. At least not yet.
Yes, HSBC has confirmed it wasn't bluffing about moving 1,000 jobs to Paris. Yes, the chief executive of UBS has said it will "definitely" move up to 1,000 bankers. Yes, Goldman Sachs has slowed planned investment in London from New York.
So, Paris, Frankfurt and New York will all benefit from these firm commitments. But to describe the news of the last few days as an exodus is overdoing it. Some 360,000 people in Greater London work in financial services, for the whole of the UK, that number rises to over a million. So far we have seen definite plans to move up to 2,000 jobs. A trickle, so far, rather than a flood.
Nevertheless, there are some big players out there who are weighing up more radical moves. Goldman Sachs is contemplating moving thousands (reports of 3,000 were dismissed today as speculation) of staff back to the European centres whence they came to huddle under a consolidated London roof.
JP Morgan is considering moving 4,000 staff - maybe more, according to CEO Jamie Dimon - to Europe or the US. In both these cases - it's clear neither would rather move anyone. If a satisfactory deal is done between the EU and the UK on access to European customers, they would be happy to stay.
3 When Asean hits 50 (Tommy Koh in Straits Times) Over the past 50 years Asean has overcome many challenges. It has grown from strength to strength. It is today one of the world's most successful regional organisations. I would highlight three of its most important achievements.
Asean has transformed South-east Asia from a region of war and conflict to a region of peace and stability. It is not yet possible to say that war between Asean countries is unthinkable. However, when an armed conflict occurred along the Cambodian-Thai border, Asean intervened by trying to calm the situation and urging the two sides to show restraint. Indonesia offered to send observers to the border. The UN Security Council outsourced the management of the crisis to Asean.
The second achievement is economic. The rise of Asean in the world economy is one of the three biggest growth stories of human history. The ambition is to create a single market and production base by eliminating tariffs and other trade barriers. With 620 million consumers, Asean has a combined GDP of $2.3 trillion, making it the seventh- largest economy in the world. The combined GDP is projected to increase by more than fourfold to $10 trillion by 2030. This will make Asean the fourth-largest economy in the world.
The third achievement of Asean is perhaps the most remarkable. The 10 member states of Asean have been able to unite and act as one. It has established fruitful relations with its 10 dialogue partners, which include all the major powers. It has established several forums to promote dialogue, mutual trust and cooperation, such as the Asean Regional Forum, Asean Plus Three, the East Asia Summit and the Asean Defence Ministers Plus. Asean chairs all these forums.
I think Asean has a bright future but it faces several important challenges. The first is to ensure that it is securely anchored in the hearts and minds of the 620 million citizens of Asean. Asean must not be seen by the people as a project of the elite and of big business.
The second challenge is for the individual governments of the 10 countries to take good care of the people who will be adversely affected by trade liberalisation and economic integration. The third challenge is to stay united in the face of intensified competition by the major powers, especially between the US and China.
Saturday, January 28, 2017
US court stays Trump immigration ban; Oil falls on prospect of higher US output; Cloud business boosts tech giants
1 US court stays Trump immigration ban (Raya Jalabi & Alan Yuhas in The Guardian) A federal judge has granted a stay on deportations for people who arrived in the US with valid visas but were detained on entry, following President Donald Trump’s executive order to halt travel from seven Muslim-majority countries.
The stay is only a partial block to the broader executive order, with the judge stopping short of a broader ruling on its constitutionality. Nevertheless, it was an early, significant blow to the new administration.
Less than 24 hours after two Iraqi men were detained at John F Kennedy airport in New York on Saturday morning, Judge Ann Donnelly ordered an emergency stay, blocking the deportation of any individual currently being held in airports across the US. “I think the government hasn’t had a full chance to think about this,” Donnelly told a packed courtroom.
The swift pace at which the travel ban was drawn up and implemented was plain in the conduct of the court. Lawyers representing the government displayed a clear lack of information, echoing the confusion of various government agencies in the past 24 hours.
2 Oil falls on prospect of higher US output (Gulf News) Oil dropped from a three-week high amid speculation that increased US drilling will boost output, offsetting cuts by the Organisation of Petroleum Exporting Countries (Opec) and other producers.
Futures fell 1.1 per cent in New York. Rigs targeting crude in the US rose this week by 15 to 566, the highest since November 2015, according to Baker Hughes Inc data. American crude output is the highest level since April, government data show. Oil supplies from Opec are plunging this month, according to tanker-tracker Petro-Logistics SA.
Last month’s pact between Opec and 11 other nations gave hope to a market stuck in a two-and-a-half-year slump. While Saudi Arabia says more than 80 per cent of the agreed cuts have been implemented, analysts and investors are waiting for data to gauge the extent of the decrease. The International Energy Agency says rising prices will spur US shale output, and drillers are adding more rigs.
Energy shares slipped after Chevron Corp posted its first annual loss since at least 1980, signalling the difficulties faced by the world’s biggest oil companies as they struggle to emerge from the worst collapse in a generation.
3 Cloud business boosts tech giants (Straits Times) Alphabet, Microsoft and Intel, which all posted quarterly results on Thursday, have reinforced what has become a truism in technology: the biggest growth is in businesses that deliver computing over the Internet.
Microsoft topped projections on the strength of rising customer sign-ups for its cloud offerings like Azure, which saw revenue almost double. Intel sales rose more than expected, helped by orders for processors that power data-centre servers - the machines at the heart of cloud computing.
Although profit at Google parent Alphabet disappointed, the numbers signalled that heavy spending to catch cloud leaders Amazon.com and Microsoft is paying off. Google's Other Revenue line, which includes cloud computing, jumped 62 per cent to $3.4 billion in the fourth quarter.
"Our cloud business is on a terrific upswing," Google chief executive officer Sundar Pichai said. "I definitely think we're going to have a great year." What started a decade ago as an easy way for start-ups to run websites has turned into an increasingly popular way for companies of all sizes to access the software needed to run their operations.
Microsoft CEO Satya Nadella has been working to reposition the company around such Internet services. In addition to robust demand for Azure, consumers and corporations continue to buy Office 365, a cloud-based version of the company's productivity software that includes Word and Excel.
Intel's fourth-quarter sales of server chips to cloud service providers jumped 30 per cent from a year earlier. "It's moving to the public cloud, it's moving to those areas at a faster rate than I think we expected," said Intel CEO Brian Krzanich. Amazon reports earnings next week and RBC Capital Markets expects the company's AWS cloud business to generate $3.6 billion in fourth-quarter revenue, up 50 per cent from the year before.
Friday, January 27, 2017
'Extreme vetting' for those entering US; US GDP growth misses forecast with 1.9% growth in Q4; Apple may join AI research group
1 ‘Extreme vetting’ for those entering US (Sabrina Siddiqui in The Guardian) Marking a draconian shift in US policy, Donald Trump has issued an executive order that will deny refugees and immigrants from certain Muslim-majority countries entry to the US.
With a simple stroke of his pen, the president issued what he dubbed “extreme vetting” measures intended to “keep terrorists out” of the US – the details of which were even more severe than had been expected.
Trump’s unprecedented action will indefinitely close US borders to refugees fleeing the humanitarian crisis in war-torn Syria and impose a de facto ban on Muslims traveling to the US from parts of the Middle East and North Africa by prioritizing refugee claims “on the basis of religious-based persecution”.
The action puts in place a 90-day block on entry to the US from citizens from Iran, Iraq, Syria, Yemen, Sudan, Libya and Somalia. It is unclear whether the measure would apply to citizens of those countries on trips abroad who already have permission to live and work in the US.
It suspends the admittance of all refugees to the US for a period of 120 days, and terminates indefinitely all refugee admissions from Syria, where the nearly six-year war under Bashar al-Assad’s regime has led to more than 500,000 civilian deaths and created the displacement of an estimated 11 million Syrians. It also caps the total number of refugees entering the US in 2017 to 50,000 – less than half the previous year’s figure of 117,000.
The number of refugees currently arriving to the US is not high by historic standards. In the early 1990s, more than 100,000 refugees were admitted to the country annually. But by 2015, the latest year covered by Department for Homeland Security (DHS) statistics, that figure had fallen to just 69,920 refugees.
The number of refugees admitted to the US increased significantly in 2016, to 96,875, according to the Refugee Processing Center. That figure represents just 0.03% of the US population of 323 million people.
2 US GDP misses forecast with 1.9% growth in Q4 (BBC) The US economy grew at an annual pace of 1.9% in the fourth quarter of last year, according to official figures. That was slower than the 2.2% growth rate economists had been expecting and below third quarter growth of 3.5%.
For the year, GDP rose by 1.6%, the slowest since 2011 and down on 2015 when the world's largest economy expanded by 2.6%. President Donald Trump has promised to lift GDP growth to 4%, through tax cuts and infrastructure spending. The last time that America's economy grew at that rate was in 2000, the year of the dotcom boom, when it expanded by 4.1%.
Nancy Curtin, chief investment officer at Close Brothers Asset Management, said the data highlighted how the heightened political climate in the US and Europe had "put a pinch on US growth".
Full year growth of 1.6% places the US behind the UK, which this week reported that GDP rose by 2% last year. UK output also grew ahead of Germany, the so-called engine room of the European economy, which expanded by 1.9% last year.
3 Apple may join AI research group (Gulf News) Apple Inc is set to join the Partnership on AI, an artificial intelligence research group that includes Amazon.com Inc, Google, Facebook Inc, International Business Machines Corp and Microsoft Corp.
Apple’s admission into the group could be announced as soon as this week, according to people familiar with the situation. Representatives at Apple and the Partnership on AI declined to comment.
When the non-profit organisation was announced in September, it anticipated gaining additional members. Apple, Twitter Inc, Intel Corp and China’s Baidu Inc were among noticeable absentees at the time. While the introduction of the Siri virtual assistant in 2011 gave Apple an early presence in AI for consumers, it has since lost ground to rivals such as Google and Amazon.
Thursday, January 26, 2017
Trump moots border wall, with tax on Mexican products; Solid 2016 for UK despite Brexit; Juggling generations at the workplace
1 Trump moots border wall with tax on Mexican products (BBC) President Donald Trump will seek a tax on goods imported from Mexico and use the revenue to build a border wall, the White House spokesman has said.
The plan was announced just after the Mexican president cancelled a visit to Washington, amid a row sparked by the question of who will pay for the wall. Mr Trump on Wednesday signed an executive order to create a wall on the US southern border with Mexico. Making Mexico pay for it was one of his key election campaign pledges.
But President Enrique Pena Nieto has always insisted that will not happen and on Thursday he pulled out of next week's White House meeting. Hours later, White House spokesman Sean Spicer told reporters that the president had discussed the funding proposal with lawmakers, and that they are considering making it part of a tax reform package the US Congress is planning.
He said that a 20% tax could generate approximately $10bn in tax revenue per year. "Right now our country's policy is to tax exports and let imports flow freely in, which is ridiculous", Mr Spicer said aboard Air Force One, adding that the tax will "easily pay for the wall". The two countries exchange about $1.6bn per day in cross-border trade.
The plan is still being finalised, he explained, saying that the tax could ultimately be as low as 5%. Earlier Mr Pena Nieto said he "lamented" the plans for the barrier. In a televised address, he told the nation: "I've said time and again: Mexico won't pay for any wall."
2 Solid 2016 for UK despite Brexit (Julia Kollewe in The Guardian) Buoyant consumer spending kept the UK economy growing at the brisk pace of 0.6% in the final quarter of 2016, marking a strong finish to the year despite the Brexit vote.
The initial estimate for fourth-quarter GDP from the Office for National Statistics matched the 0.6% growth recorded in the third and second quarters. It was a touch better than the 0.5% rise expected by City economists. The pound hit a fresh six-week high of $1.2673 just before the data was released.
The economy’s resilience has confounded forecasters, some of whom feared the UK would slip into recession following the shock outcome of the EU referendum in June. However, economists are still expecting a slowdown this year as higher inflation affects consumers’ ability to spend.
In 2016, the UK economy grew by 2%, slower than the previous two years, which showed growth of 2.2% and 3.1% respectively. Alan Clarke, of Scotiabank, noted that the first six months since the Brexit vote had seen growth of almost 2.5% annualised, which is above the economy’s trend rate. “Clearly, life goes on, despite the Brexit vote.”
3 Juggling generations at workplace (Khaleej Times) As Generation Z prepares to enter the workforce and join their Generation X and Y colleagues, employers around the world must carefully review their workplace policies to ensure that they have a workplace that is comfortably equipped to deal with all three generations.
As organisations seek to optimise the work environment and policies for multigenerational workforces, it's important to explore whether generational differences are actually relevant. Focusing on the behaviours and attitudes of Gen X, Gen Y and Gen Z, Insead's Brave New Workplace eBook explores how these three generations are reshaping the nature of work and workplace culture.
Gen X calls Gen Y the Peter Pan Generation, saying they cling to childhood even as adults. While millennials characterise their Gen X peers as nihilistic and disdainful. Neither has fully formed their opinions about Gen Z, who are on the cusp of entering the workforce.
"Regardless of opinion about the members of this age group, the inclusion of Gen Z in to the labour market will initiate a new era in workplace culture, their presence will disrupt the nature of work as we know it today and therefore understanding the new multigenerational workforce must not be treated as an afterthought," said Universum CEO, Petter Nylander.
"Gen Z are set to account for around 20 per cent of the adult workforce by 2020, and knowing how to harmonise and steer a workplace that includes these three generations should be a top priority for any employer."
Tuesday, January 24, 2017
More Trump pressure on US car makers to make at home; Scandal drags BT shares down 20%; An iPhone case as a drone pad
1 More Trump pressure on US car makers to make at home (BBC) US President Donald Trump has told the heads of the big three US car giants to build more vehicles in America. During a White House meeting with the companies' chief executives he promised to make investment more attractive through cuts in regulations and taxes.
Mr Trump met General Motors' Mary Barra, Ford's Mark Fields, and Fiat Chrysler's Sergio Marchionne. The president has criticised some carmakers via Twitter, warning them about expanding plants in Mexico and elsewhere and then expecting to import vehicles tariff free.
Tuesday's meeting was Mr Trump's first chance to meet the car chiefs face-to-face to press home his "buy American, hire American" policies. The executives raised the issue of fuel efficiency rules, trade policy and other regulatory matters during the hour-long meeting. Mr Marchionne said after the meeting that the president did not give them specifics on what regulations he would cut.
GM, Ford, and Fiat Chrysler, as well as foreign carmakers, have announced a string of new US jobs and investments in recent weeks. Toyota said it would add 400 jobs and invest $600m in an Indiana plant, aiming to boost production there by 10%. The Japanese company has already said it plans to invest $10bn in the UK over the next five years.
According to Reuters, US car manufacturers have collectively added more than 78,000 jobs since 2009, the year when GM and Chrysler - before it became part of Fiat - filed for bankruptcy protection as part of government bailouts during the US recession. They have invested more than $40bn in US plants during that period.
2 Scandal drags BT shares down 20% (Nick Fletcher in The Guardian) Almost £8bn, or more than a fifth, was wiped off the stock market value of BT after the telecoms group revealed that an accounting scandal at its Italian business was much worse than originally thought.
The company also warned of a slowdown in some of its other operations, with international corporate clients cutting back after the Brexit vote and UK government departments reducing their spending. As a result, profits would be £300m lower than previously expected.
The Italian problems mean the company’s remuneration committee will examine bonus payments previously paid to leading directors, including the chief executive, Gavin Patterson, which were based on targets that may not now be met.
It also emerged that Italian prosecutors were opening their own investigation into BT Italia over alleged false accounting and embezzlement. Patterson earned £5.3m last year including an annual bonus of just over £1m and share awards worth £3m.
BT’s shares fell 79.55p or 20.7% to 303p on the news, its biggest ever one day fall and its lowest level since June 2013. The company’s shares are among the most widely owned on the UK stock market, with a large number of small investors who have held on since the company was privatised in 1984.
3 An iPhone case as a drone pad (Emily Price in San Francisco Chronicle) It’s a bird! It’s a plane! It’s an… iPhone case? A new drone launching on Kickstarter today puts a quadcopter on the back on your iPhone case.
The idea behind the design is that you’ll be able to have the drone with you no matter where you are, rather than having to plan to bring it with you on a particular trip. The device snaps off the back of your iPhone when you want to use it, and then snaps back on when you’re done. When attached, the case is still thin enough that it fits in a pocket.
Even better, the drone flies itself, so you can focus on posing for the hovering camera. While the demo shows it being used with an iPhone, Selfly claims the device can work with both Android and iOS, and the unique case will fit any phone between 4-6inches, including the iPhone 6, iPhone 7, Galaxy S6, Galaxy S7, and Nexus 6. Images captured by the drone have an 8-megapixel resolution, and video is recorded at 1080p/ 30fps.
One thing the device is short in: battery life. The drone’s battery will only allow it to take 20 photos or shoot five minutes of video on a single charge. It also might not actually become a reality. Selfly is on Kickstarter, which means it’s raising money for production, it’s not a product already for sale.
On its Kickstarter page, Selfly claims that it has a prototype ready, and will begin mass production of the device once it reaches its funding goal of $125,000. When it does start production, it plans to ship the first devices in June of this year. You can score one of the first when you pledge $79.
Monday, January 23, 2017
Trump withdraws from Trans-Pacific Partnership; London air pollution 'very high' for first time; Weak growth challenges Gulf banks
1 Trump withdraws from Trans-Pacific Partnership (David Smith in The Guardian) Donald Trump has begun his effort to dismantle Barack Obama’s legacy, formally scrapping a flagship trade deal with 11 countries in the Pacific rim. The new president also signed executive orders to ban funding for international groups that provide abortions, and placing a hiring freeze on non-military federal workers.
The TPP was never ratified by the Republican-controlled Congress, but several Asian leaders had invested substantial political capital in it. Their countries represent roughly 13.5% of the global economy, according to the World Bank. Trump’s election opponent, the Democrat Hillary Clinton, had also spoken out against the TPP.
The move also intensified speculation over the future of the 17-year-old North American Free Trade Agreement (Nafta). There were reports that Trump would sign an executive order on Monday to begin renegotiating terms with Canada and Mexico.
He did move to reinstate a ban on providing federal money to international non-government organizations that perform abortions or provide information about them. The policy also prohibits taxpayer funding for groups that lobby to legalize abortion or promote it as a family planning method.
Republican administrations have tended to institute such a ban while Democrats have reversed it, most recently President Obama in 2009. Trump signed it one day after the anniversary of the supreme court’s 1973 Roe v Wade decision that legalized abortion in the US. Activists fear that the precedent is now under threat.
Earlier, Trump met a group of top business leaders including Elon Musk, the head of SpaceX, and the executives from Dell, Johnson & Johnson and Lockheed Martin. He set out plans to cut regulations for businesses in the US and slash the company tax rate from 35% “down to anywhere from 15 to 20%”.
2 London air pollution ‘very high’ for first time (San Francisco Chronicle) London's mayor has issued a "very high" air pollution alert for the first time, as cold, windless weather allowed emissions across the whole of southeast England to build up over the weekend.
The London air monitoring team at King's College London said pollution in the capital was at "black," the highest level, meaning people should reduce physical exertion outdoors. The rise in pollution was caused by a combination of traffic pollution and wood burning, it added. That combined with an import of pollution from the continent on Sunday.
Officials warned that many other places across Britain were also suffering from high levels of pollutants known as particulate matter.
3 Weak growth challenges Gulf banks (Babu Das Augustine in Khaleej Times) Weak economic environment will continue to weigh on the financial profiles of banks across the Gulf Cooperation Council (GCC) countries in 2017 and 2018, according to banking sector analysts.
“The end of the commodities boom has also increased the pressure on GCC banks’ asset quality and profitability indicators. While we expect to see further weakening in some of these indicators in 2017-2018, we think that GCC banks have built sufficient buffers to make the overall impact on their financial profiles manageable,” said S&P global Ratings credit analyst Mohammad Damak.
Over the past one year loan growth to private sector has taken a beating. Growth in lending to the private sector halved to 5 per cent on average as of September 30, 2016, compared with 10 per cent in 2015. In 2017-2018, S&P analysts expect this situation to continue as the government’s policy response to lower oil prices continues to take the form of spending cuts and the postponement of infrastructure projects.
The less-supportive economic environment is expected to result in further deterioration in asset quality. As of September 30, 2016, these indicators plateaued for the GCC banks and analysts see further deterioration in 2017-2018. S&P expects the downward trend to last for at least two years, barring any unexpected increase in hydrocarbons prices.
Sunday, January 22, 2017
Most Japanese firms plan no wage hike; New robot revolution will take boss' jobs; A radical plan to defeat poverty
1 Most Japanese firms plan no wage hike (Straits Times) Nearly two-thirds of Japanese companies do not plan to hike their workers' wages this year, a Reuters poll showed, a blow to Prime Minister Shinzo Abe's campaign for higher pay to spur a recovery and a way to end two decades of deflation.
The survey also found that most wage gains over the past four years since Abe came to power have been minimal and that nearly one-quarter of firms have implemented none at all. In each of those four years, just before labour and management kick off their annual "shunto" talks Abe has urged companies to raise wages to boost households' purchasing power and stimulate spending.
But Japan Inc has generally resisted Abe's plea. Although the yen has weakened recently, many companies were hurt badly by last year's spike in the currency and are loath to commit to higher wages in the face of uncertainty amid threats about trade barriers by new US President Donald Trump.
As such, companies appear to opt to reward employees with one-off bonus payments after profits are secured, rather than promising a base pay raise. In Japan the base salary accounts for the bulk of monthly wages. Base pay rises had been virtually frozen for over a decade since the early 2000s, until Abe swept to power in late 2012 with a pledge to reboot the moribund economy.
2 New robot revolution will take boss’ jobs (Larry Elliott in The Guardian) Advances in artificial intelligence (AI) mean a second wave of change is approaching – and this time the jobs at risk from the machines are going to be jobs in the service sector.
As Dhaval Joshi, economist at BCA Research, has noted, it is not going to be the low-paid jobs in the service sector such as cleaning, gardening, carers, bar staff or cooks, whose jobs are most at risk. That’s because machines find it hard to replicate the movements of humans in everyday tasks.
The first army of machines wiped out well-paid jobs in manufacturing; the second army is about to wipe out well-paid jobs in the service sector. In many cases, the people who will be surplus to requirements will have spent many years in school and university building up their skills.
Humans are still more innovative and entrepreneurial than machines, which means there will be rich rewards for the creative. They will be few in number, however, so the dynamic of recent years – exceptionally high rewards for those at the top, a hollowing out of the middle class, and the expansion of low-paid insecure jobs at the bottom – will not just continue but become more pronounced.
This fourth industrial revolution, just like all the others, will lead to a growth spurt. But the last big epoch of technological change was accompanied by political change that ensured those making the cars, the washing machines and the TV sets could also buy them. Full employment policies, capital controls, progressive income tax and strong trade unions ensured this was the case.
3 A radical idea to defeat poverty (Simon Copland on BBC) This month Finland is embarking on a radical economic experiment. Its government is giving 2,000 people free money for two years, guaranteeing them a minimum income. The participants – selected at random from people receiving welfare – will each get 560 euros ($600) a month and they will continue to receive the money even if they get a job.
The Finnish trial is the largest of a number of experiments looking at what happens when you give every citizen a guaranteed income – a policy known as universal basic income. It’s a simple proposal, but a radical one. Some dislike the idea of governments handing out money indiscriminately. Others worry that guaranteed incomes could make it hard to find people willing to do necessary but unpopular jobs.
Yet the policy is gaining support around the world, from Silicon Valley to India. In the wake of the global financial crisis of 2008, many now see a universal basic income as the best way to reform struggling welfare systems, and to deal with the overwhelming economic challenges most countries are facing.
Influential 20th Century economists Milton Friedman and Friedrich Hayek both thought that some form of guaranteed income was the best way for governments to alleviate poverty. With social welfare coming under increasing financial and political pressure, some see basic income as an obvious solution. Providing a basic income can actually be cheaper than existing welfare systems, mainly because a uniform payment provided to all is cheaper to implement and monitor.
Yet many have returned to the idea today because they see a basic income as a way to buffer people from a global economy in flux. The shockwaves of the 2008 financial crisis still linger. But there are also growing fears about the threats posed by automation, as robotics and artificial intelligence move into workplaces.
Not everyone likes the idea, however. A referendum in Switzerland last year rejected a proposal to give 2,500 Swiss francs ($2,418) a month to every adult and a quarter of that amount to children. Those who opposed the plan argued that it would be unaffordable and would encourage people to drop out of work, especially those with low-paid manual jobs. Who would choose to be a cleaner or a rubbish collector if they did not have to?
But those in favour of basic income say it could force society to reassess the value of such roles and the rewards offered to those who do them. Indeed, a guaranteed income – even a supplementary one – could challenge the idea that people are only valuable members of society if they work.
Saturday, January 21, 2017
1 Globalisation grinding to a halt? (Larry Elliott in The Guardian) His speech was like one normally expected of an American president. Countries must resist the temptation to retreat into harbour, the world leader said to a packed and admiring audience, but instead have the courage to swim in the vast ocean of the global market.
This was China’s president, Xi Jinping, in Davos last week, making it clear that he was prepared to fill the vacuum if Donald Trump went ahead with the sort of protectionist policies he had proposed in his election campaign.
The new US president has said he will renegotiate the Nafta free trade agreement between the US, Canada and Mexico and slap duties on imports from countries that don’t play by global trade rules. He also floated the idea of a 35% tariff on goods from Mexico, a 45% tariff on goods from China, and a border tax – which would impose a levy on imports but not exports.
Those attending Davos reassured themselves that Trump would ditch all these proposals once he was in office. But if he doesn’t, the consequences are obvious: the world will be plunged into a trade war that will bring the globalisation of the past quarter of a century to a juddering halt.
And it is not just Trump. Alarm bells were set ringing by Britain’s vote for Brexit, seen as a shout of rage from those who feel that globalisation has brought them precious little. They will clang even louder if Marine Le Pen wins the French presidency in May. One senior diplomat said that if Le Pen pulled off yet another shock result, it would spell the end of the European Union.
The received wisdom for Davos is that this isn’t a tipping point. Globalisation, it was asserted, is really being driven by technological change over which politicians have little control. Supply chains cross borders, often many times over. Consumers care more about whether the goods they can order online will be delivered the next day than where they are sourced from.
Douglas Flint, chairman of HSBC, cited the example of the taxi app Uber as a disruptive technological change that was here to stay. The globalisation optimists may well be proved right. Unravelling the complex web of international links that have been established since the Berlin wall came down at the end of 1980s would be a long and painful process.
2 Trumponomics and markets (Lim Say Boon in Straits Times) Look past the US President Donald Trump's Twitter storms and focus on the big trends to navigate what will likely be extraordinarily volatile market conditions this year. In analysing markets, the three things I focus on are government spending, inflation and US Treasury yields. All of these had already started reversing before the arrival of Mr Trump.
America had already exhausted fiscal austerity before the Trump election. The budget deficit fell from 10 per cent of gross domestic product at the time of the global financial crisis and appeared to have bottomed at around 2 per cent in 2015.
Globally, politicians, economists and central bankers have been arguing for an end to austerity, calling on governments to spend more. Government austerity was offsetting the stimulus from quantitative easing, so the argument went. But, the Obama administration couldn't meaningfully lift government spending as a result of the obstruction by a Republican Congress. Now, the Republicans control both the White House and the Congress. Expect much more government spending, much bigger budget deficits.
Inflation was starting to pick up anyway. It started reversing mid-2015. And, as a result, the 10-year US Treasury rose in mid-2016. Mr Trump did not create these trends, but his mere arrival has already accelerated them. And, his spending will further accelerate them upwards. Near term, the expectation of Trumponomics is bullish US equities.
The bottom line is this: Rates are still very low. The economy is still flush with cash. And, most importantly, the market believes that it is not just about government spending and taxes. It is about a profound, pro-capitalist shift in government that could "ignite animal spirits and attract productive capital".
Sentiment could take US equities higher in the near term, notwithstanding the recent hesitation. Along with that, I am also bullish on US banking stocks. Emerging market and Asia ex-Japan stocks look bearish near term.
3 India’s diverse protests (Soutik Biswas on BBC) India, wrote author VS Naipaul, is a country of a million little mutinies, reeling with rage and revolt. One such mutiny has brewed almost all of this week in southern Tamil Nadu state, where people have been protesting against a ban on a traditional bull-taming contest, known as jallikattu. They say the ban is an attack on their culture and identity.
On Saturday evening, a harried government scrambled to bring in a temporary law that would allow the sport to resume.The embers of this unique protest will continue to flicker because they were not merely about bulls alone. Animal rights activists, who support the ban, say the sport is cruel to animals. Nonsense, say the bull owners and supporters.
The January protests have been spontaneous and not led by any political party. And the protests are no longer just about bulls. There are people angry with the recent currency ban and the shortage of cash that it caused. There is also angst about a controversial judicial order making it compulsory to play the national anthem in theatres and for audiences to stand when it is being played.
There are people who have protested against a nuclear plant in the state and against GM crops. There are irate drought-hit farmers who feel they are being deprived of their share of water from a river that their state shares with neighbouring Karnataka.
"Jallikattu is just a trigger. This huge protest is a manifestation of the trust deficit between Tamil people and the federal government and the judiciary," says historian AR Venkatachalapathy. "Many don't trust Prime Minister Narendra Modi's BJP government's muscular nationalism and recent moves like the currency ban."