BOJ cuts economic view for three Japan regions, maintains for six By Reuters



TOKYO (Reuters) – The Bank of Japan on Wednesday cut its assessment for three of the country’s nine regions in a quarterly report analyzing economic conditions across Japan, while maintaining its view for the other six.

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Saudi Arabia Says OPEC+ Focus on Oil Cuts Undeterred by Unrest By Bloomberg



(Bloomberg) — Saudi Arabia’s Energy Minister said that OPEC and its allies remain focused on using production cuts to reduce oil inventories to normal levels, undeterred by the flare up of political tensions in the Middle East.

Oil prices have erased all of this year’s rally, which saw surge to a three-month high of almost $72 a barrel as Washington and Tehran faced off after the U.S. assassination of a top Iranian general. retreated again as the countries backed away from full-blown conflict, while supplies remain comfortable.

The Organization of Petroleum Exporting Counties and its allies, which pump about half the world’s oil, thus remain resolved to press on with output cuts aimed at draining away any excess stockpiles, Saudi Energy Minister Abdulaziz bin Salman said in a Bloomberg television interview on Monday.

“Our endeavor in OPEC+ is to try to bring inventories to a certain level, where it is within the contours” of recent years, bin Salman said in Dammam. That range should be around the average of the last five years and the period from 2010 to 2014, he said.

Bin Salman said he was “very comfortable” with the implementation of production cuts by OPEC+ nations in December, the final month before the alliance is due to implement even deeper curbs. Iraq, which has long been lax in its performance, didn’t meet its target last month but made a “reasonable” effort, he said.

He declined to say what the alliance may decide in March, when the current cutbacks are scheduled to end and they will have to decide whether to prolong them.

In the Strait of Hormuz, the narrow waterway through which tankers carry Persian Gulf oil to international markets, concerns over a threat to shipping because of the friction between Washington and Tehran only lasted about 24 hours, he said. The kingdom is “doing everything in the book” to safeguard its oil production facilities, he added.

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Israel’s deficit to reach 4% without tax hikes, spending cuts: Finance Ministry By Reuters


© Reuters. Israel’s deficit to reach 4% without tax hikes, spending cuts: Finance Ministry

By Steven Scheer

JERUSALEM (Reuters) – Israel’s budget deficit is projected to be at least 4% of gross domestic product in the next few years if the government does not make tax and spending adjustments of tens of billions of shekels, the Finance Ministry said in a report on Sunday.

A year-long political stalemate has made it difficult to take proper fiscal steps since the caretaker governments are limited in power. A third election in less than a year in March would mean a 2020 state budget would not be approved until at least the middle of the year.

In the meantime, a pro-rated version of the 2019 budget is being used.

Israel posted a budget deficit of 3.7% of GDP in 2019, above an initial target of 2.9%.

Finance Minister Moshe Kahlon has come under fire from economists who say that he and Prime Minister Benjamin Netanyahu increased spending on state subsidies for day care and other services, and gave pay rises to police and other public servants, while cutting taxes at the same time.

Kahlon has placed the blame for the gap on his ministry’s economists, saying they overestimated government income.

Analysts expect a similar deficit in 2020.

The Finance Ministry said that in 2021 the deficit would reach 4.2% of GDP unless it makes 30 billion shekels ($8.7 billion) of tax hikes and/or spending reductions. The target is 2.25% of GDP and the next government will likely raise it.

To meet a 2% of GDP target in 2022, 33 billion shekels of adjustments are necessary, the ministry said.

For 2020, the ministry expects tax income of 330.2 billion shekels, 1 billion less than in its prior estimate in June but above 2019 revenue of 317.4 billion shekels.

The ministry also trimmed its 2020 economic growth estimate to 3% from 3.2% in its prior forecast, with the decline mainly due to expectations of weaker growth in investment and private spending.

Last week, the Bank of Israel said growth this year would be 2.9% — with 0.3% of the growth coming from production at the new Leviathan field.

The ministry projects stable growth of 2.9% to 3% between 2021 and 2023.

($1 = 3.4656 shekels)

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France considering new round of business tax cuts Minister By Reuters



PARIS (Reuters) – France is preparing plans for a new round of tax cuts for companies to help spur economic growth and achieve full employment by 2025, Finance Minister Bruno Le Maire said on Tuesday.

High unemployment has been the scourge of successive French governments for decades although President Emmanuel Macron has made some headway in bringing it down after a series of pro-business reforms early in his five-year term.

Macron is due to present measures in the coming weeks for a new supply-side push to boost growth, a plan dubbed the productive pact as it is supposed to make life easier for companies. He will make the final call on any tax cuts.

“The productive pact has a clear objective: full employment in 2025,” Le Maire told business leaders. “All levers will be used for this end, (including) … a cut in production taxes, according to a time frame that should start in 2021.”

The French unemployment rate stood at 8.6% in the third quarter of 2019, a fraction above the 8.5% recorded in the previous three months, which was the lowest since 2008.

Production taxes are a raft of levies companies must pay in France on top of the normal corporate income tax.

The finance ministry estimates production taxes are worth a combined 77 billion euros ($86 billion) – twice the EU average and seven times more than in Germany – and French firms often complain they are a major problem for their competitiveness.

Production taxes are levied on things such as commercial and industrial property and also include a contribution to value added, a turnover tax and a myriad of secondary levies.

However, Macron may find it difficult to cut production taxes as they are an important revenue source for local and regional administrations, which are already suffering from lost revenue after the scrapping of a tax on primary residences.

($1 = 0.8951 euros)

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South Africa’s Eskom extends power cuts into Monday By Reuters


© Reuters. South Africa’s Eskom extends power cuts into Monday

JOHANNESBURG (Reuters) – South Africa’s struggling state power firm Eskom said on Sunday that it would extend electricity cuts until 5 a.m. local time (0300 GMT) on Monday.

Eskom said late on Saturday that it would cut up to 2,000 megawatts (MW) from the national grid from 2000 GMT on Saturday until 0600 GMT on Sunday, after a conveyor belt failure at its Medupi coal-fired power station.

The cash-strapped utility said on Sunday that the conveyor belt had been repaired but that plant breakdowns were still constraining the power system in Africa’s most industrialized economy.

Eskom has been battling to keep the lights on, despite low electricity demand over the Christmas and New Year public holidays. It last implemented power cuts in mid-December.

It is rushing to bring back online some generating units from repairs and maintenance, and to replenish diesel and water levels at backup generators so it can meet demand on Monday, when many people will return to work.

Around a third of Eskom’s 44,000 MW nominal generating capacity was offline on Saturday because of plant breakdowns.

Eskom executives have blamed repeated problems at coal-fired power plants on a lack of critical mid-life maintenance at older stations, and design flaws on the mammoth Medupi and Kusile projects.

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Turkish inflation rises to 11.8%, window for more rate cuts narrows By Reuters


Turkish inflation rises to 11.8%, window for more rate cuts narrows

By Ezgi Erkoyun and Behiye Selin Taner

ISTANBUL (Reuters) – Turkey’s annual inflation rate rose slightly more than expected to 11.84% in December, official data showed on Friday, ending the year close to a government target and probably narrowing the window for more interest rate cuts in 2020.

The Turkish government, which pushed the central bank for aggressive monetary easing last year to lift the economy from recession, had forecast 12% inflation at the end of 2019 and sees it edging down to 8.5% by the end of 2020.

A Reuters poll had forecast consumer price inflation at 11.56% last month, up from 10.56% in November.

Month-on-month, consumer inflation stood at 0.74% in December, again higher than the poll’s forecast of 0.49%.

Turkish inflation readings typically came in lower than expected last year, encouraging the central bank to slash its key policy rate to 12% by December from 24% in July.

The bank says it sets policy to yield a “reasonable” real interest rate, which has been compressed by the rise in inflation last month. That could curb room for a bit more policy easing in the first half of 2020, analysts said.

“The room for further policy easing is limited (and) recent depreciation pressure in the currency would put more pressure on the central bank to stop,” QNB Finansbank economists wrote in a note.

The lira fell 5% against the dollar in the fourth quarter of 2019, due in part to Turkey’s military incursion in Syria and the threat of U.S. sanctions. It was down 0.3% on Friday at 0946 GMT after the U.S. killing of a top Iranian commander in Iraq ratcheted up tensions between the two powers.

Turkish President Tayyip Erdogan fired the central bank’s then chief in early July for not following policy instructions, a move that added to doubts about the bank’s independence.

Separately, on Friday, the bank scheduled an extraordinary general assembly for January for a second straight year, rather than April as in previous years, so that it could speed up the distribution of its annual profits to the government. The meeting will be held on Jan. 20.

In 2018, annual inflation surged to a 15-year high above 25% as Turkey’s currency crisis sent the cost of imports soaring.

Since then, the combination of initially tight monetary policy, weak domestic demand and so-called base effects helped bring price rises down https://tmsnrt.rs/2qbaDqO and by October of 2019 the gauge fell to as low as 8.55%. (Graphic: Turkish end-2019 CPI lower than government target click, https://fingfx.thomsonreuters.com/gfx/editorcharts/TURKEY-ECONOMY-INFLATION/0H001QXN69RK/eikon.png)

The consumer price index (CPI) rebounded in the last two months primarily due to base effects, though in December a 43% annual surge in alcoholic beverages and tobacco prices, following tax rises, also lifted the overall measure.

The producer price index rose 0.69% month-on-month in December for an annual rise of 7.36%, data from the Turkish Statistical Institute also showed.

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Tesla cuts starting price for China-made Model 3 vehicles


FILE PHOTO: A China-made Tesla Model 3 vehicle is seen at a delivery ceremony in the Shanghai Gigafactory of the U.S. electric car maker in Shanghai, China December 30, 2019. REUTERS/Yilei Sun

SHANGHAI (Reuters) – U.S. electric vehicle maker Tesla Inc (TSLA.O) on Friday cut the starting price for its China-made Model 3 vehicles to 299,050 yuan ($42,910.85) after receiving Chinese subsidies for electric vehicles, according to its China website.

The reduction from its earlier price of 355,800 yuan comes days before it rolls out cars made from its $2 billion factory in Shanghai on January 7.

Reporting by Yilei Sun and Brenda Goh; Editing by Shri Navaratnam



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China cuts banks’ reserve ratios again, frees up $115 billion to spur economy By Reuters


© Reuters. A clerk arranges bundles of 100 Chinese yuan banknotes at a branch of China Merchants Bank in Hefei

BEIJING (Reuters) – China’s central bank said on Wednesday it was cutting the amount of cash that all banks must hold as reserves, releasing around 800 billion yuan ($114.91 billion) in funds to shore up the slowing economy.

The People’s Bank of China (PBOC) said on its website it will cut banks’ reserve requirement ratio (RRR) by 50 basis points, effective Jan. 6. The move would bring the level for big banks down to 12.5%.

The PBOC has now cut RRR eight times since early 2018 to free up more funds for banks to lend as economic growth slows to the weakest pace in nearly 30 years.

Many investors had expected Beijing to announce more support measures soon. While recent data has shown signs of improvement, and Beijing and Washington have agreed to de-escalate their long trade war, analysts are unsure if either will prove sustainable and forecast growth will cool further this year.

“The RRR cut will help boost investor confidence and support the economy, which is gradually steadying,” said Wen Bin, an economist at Minsheng Bank in Beijing, who also expects another cut in China’s new loan prime rate (LPR) this month.

Premier Li Keqiang raised expectations of an imminent RRR cut in a speech in late December, saying authorities were considering more measures to lower financing costs for smaller companies, including broad-based and “targeted” RRR reductions aimed at helping more vulnerable parts of the economy.

Freeing up more liquidity now would also reduce the risks of a credit crunch ahead of the long Lunar New Year holidays later this month, when demand for cash surges. Record debt defaults and problems at some smaller banks have already added to strains on China’s financial system.

The PBOC said it expects total liquidity in the banking system to remain stable ahead of the Lunar New Year.

Of the latest funds released, small and medium banks would receive roughly 120 billion yuan, the central bank said, stressing that it should be used to fund small, local businesses.

The PBOC said lower reserve requirements will reduce banks’ annual funding costs by 15 billion yuan, which could reduce pressure on their profit margins from recent interest rate reforms. Last week, it said existing floating-rate loans will be switched to the new benchmark rate starting from Jan. 1 as part of a broader effort to lower financing costs.

Analysts at Nomura had forecast the PBOC would deliver a system-wide 50 bps cut in the RRR before the holidays, together with an added reduction for some smaller banks.

Analysts say the U.S-China Phase one trade deal, expected to be signed this month, will relieve only some of the pressure weighing on the Chinese economy, which has also been weighed down by sluggish domestic and global demand, slowing investment and weakening business confidence.

China plans to set a lower economic growth target of around 6% in 2020, relying on increased state infrastructure spending to ward off a sharper slowdown, policy sources said. Growth has cooled from 6.8% in 2017 to 6% in the third quarter of 2019, the slowest since the early 1990s.

MORE POLICY EASING SEEN

Smaller, private firms have been particularly hard hit as regulators clamped down on riskier types of financing and debt.

Despite Beijing’s urging, commercial banks have been reluctant to lend to such firms as they are considered bigger credit risks than state-owned firms.

In recent months, China has also started to make modest cuts in major policy lending rates to lower corporate financing costs, with more expected in the new year.

Tang Jianwei, a senior economist at Bank of Communications in Shanghai, expects two to three RRR cuts this year and a further 25-30 bps reduction in the loan prime rate.

But officials have repeatedly pledged not to resort to “flood-like” stimulus like that in past economic downturns, which left a mountain of debt and stoked fears of property market bubbles.



Oil price rise muted in 2019 despite sanctions, supply cuts, attack in Saudi Arabia By Reuters


2/2
© Reuters. FILE PHOTO: Pump jacks operate at sunset in Midland

2/2

By Devika Krishna Kumar and Florence Tan

NEW YORK/SINGAPORE (Reuters) – Oil prices rose more than 20% this year but there were no sharp spikes and crude futures barely sniffed $70 a barrel despite attacks on the world’s biggest oil producer, sanctions that crippled crude exports of two OPEC members and gigantic supply cuts from big oil producing countries.

The price gains in crude oil benchmarks were all in the first quarter of 2019, even as the next several months featured supply shocks that in the past would probably have propelled crude past the $100 mark.

Prices are likely to remain rangebound in 2020 as swelling supplies, particularly from the United States, offset cuts from the Organization of the Petroleum Exporting Countries and weakening worldwide demand, brokers and analysts said.

U.S. crude oil () is on track to end 2019 roughly 35% higher. Since the end of March, it is up just 3%, after rallying early in the year after the United States introduced sanctions on Venezuela. has gained 26%, but is off by 1% since the first quarter.

GRAPHIC: Oil holds steady in 2019 despite supply shocks https://fingfx.thomsonreuters.com/gfx/editorcharts/GLOBAL-OIL-PRICES/0H001QXS6B4E/index.html

Investors and analysts say U.S. production and weak demand kept prices under control. The United States is on track to be a net petroleum exporter on an annual basis for the first time in 2020. Output is expected to average 13.2 million bpd, an increase of nearly a million bpd from 2019.

“Demand growth cratered while U.S. production continued to barrel along at high rates and geopolitical risk eased,” Bob McNally, president of Rapidan Energy Group.

“And now, at the end of the year, weary investors are looking to next year and seeing a tsunami of oil.”

Investor concern over peak oil demand is expected to weigh on prices next year, particularly as the urgency around action against climate change has increased. Also, a long-term resolution of the U.S.-China trade war seems elusive, keeping market watchers wary of predicting energy demand growth in the world’s two largest economies.

“There is growing concern around the long-term sustainability of U.S. oil and gas companies for investors in an ESG (environmental, social and governance) driven world,” said Greg Sharenow, portfolio manager at PIMCO, who co-manages more than $15 billion in commodity assets.  

The U.S. Energy Information Administration expects average crude oil prices will be lower in 2020 than in 2019 because of rising inventories. Outside the United States, production is expected to continue to grow in Brazil, Norway, and Guyana.

Prices did spike, but only briefly after drone attacks on Saudi Arabia’s biggest oil facility and U.S. sanctions on Venezuela and Iran. September attacks on Aramco (SE:) facilities briefly pushed Brent above $72 a barrel, but within 10 days, oil prices sank back as Aramco brought production back online.

Notably, the market barely wavered in its view of where prices would end up. Implied volatility, a sign of how the market prices future gyrations in WTI and Brent futures, was largely muted in 2019 after a see-saw 2018, a sign that investors focused on broader supply trends.

Both Brent and U.S. West Texas Intermediate (WTI) futures were locked in a $22-$23 a barrel range during the year, well below last year’s levels.

While the rate of annual U.S. production growth is expected to slow, the country should still account for about 85% of the increase in global oil production to 2030, according to the International Energy Agency. PIMCO’s Sharenow said U.S. crude supply would need to slow for the price outlook to brighten.

“If we can move down to supply growth in a much more sustainable way of about 500,000-600,000 bpd, then all of a sudden the world is much better in 12 months,” Sharenow said.



China Bucks Global Research Cuts as Analyst Count Hits Record By Bloomberg


© Reuters. China Bucks Global Research Cuts as Analyst Count Hits Record

(Bloomberg) — China’s brokerages have a record number of analysts on the rolls after a fourth straight year of hiring, bucking a global trend of investment banks scaling back on research.

Analysts registered with the Securities Association of China climbed to 3,225 as of Dec. 26, an increase of 8% from 2018. By comparison, headcount at 12 major global banks shrank 8% to 3,500, on pace for the sharpest annual decrease since research firm Coalition Development started collating the numbers in 2012.

The divergence underscores seismic shifts in China’s $21 trillion capital markets. Rising foreign fund inflows as well as an uptick in stock and bond issuance have boosted demand for analysis on everything from the macro economy and industries to fixed-income and commodities. Policy makers are also pushing local brokerages to become more competitive in preparation for a build-up by Wall Street giants including Goldman Sachs Group Inc (NYSE:). and JPMorgan Chase (NYSE:) & Co.

Research is becoming a core offering with even smaller firms building teams, said Liu Yuanrui, president of Changjiang Securities Co., a mid-size brokerage based in central China, which had over 90 analysts. “Every company realizes it needs one.”

Globally, research has been buffeted by changes in technology and the demands of the marketplace with the rise of automation and passive funds — trends that have been slower to catch on in China.

European rules known as MiFID II spurred the most recent wave of job cuts by forcing research costs to be separated from trading fees. Chinese firms focus on the vast domestic retail market and are largely shielded from MiFID II, which only applies to banks and brokerages that interact with European asset managers.

That’s not to say analysts in China has been insulated from bad news. Compensation structures at local brokerages rely heavily on commission income from funds, something that’s been falling away since the market rout of 2015.

Salary Cuts

The dwindling commission pool has pressured salaries lower. About 45% of respondents to a recent New Fortune magazine survey of over 1,000 analysts reported a salary cut over the past year, with almost a fifth saying their compensation declined by over 20%.

Analysts have been forced to focus on professional rankings to signal their abilities and boost earnings. While run-of-the-mill analysts with five years of experience make the equivalent of about $75,000 a year in China, someone on the New Fortune rankings, a hyper-competitive version of the Institutional Investor poll and China’s biggest analyst contest, could easily take home $1 million or more.

The ploy came under regulatory fire last year amid rising questions about how analysts behaved in order to secure votes for the competition. New Fortune suspended last year’s contest before resuming it in October with much less fanfare.

Despite the questions around commissions and compensation, new research departments are popping up at smaller brokerages such as Kaiyuan Securities Co. with China’s financial liberalization building optimism about new lines of business.

The Nasdaq-style STAR market launched to much fanfare earlier this year and brokers are looking for increased demand from newcomers to the asset management space, including banks’ wealth management units and foreign institutional investors.

Still, Changjiang’s Liu doesn’t expect a significant pick up in income unless brokerages change their business models.

“Firms have to rethink the function of research teams because more profits cannot be derived from the current model,” he said.

To contact Bloomberg News staff for this story: Lucille Liu in Beijing at xliu621@bloomberg.net

To contact the editors responsible for this story: Candice Zachariahs at czachariahs2@bloomberg.net, Jun Luo

©2019 Bloomberg L.P.