BUSINESS

Saturday 11 March 2017

PAGE | 18 BRENT PAGE | 19 10,467.23 7,343.08 20,885.84 $48.82 US economy adds +105.74 PTS +28.12 PTS +27.65 PTS -0.46 Volkswagen 235,000 jobs in 1.02% 0.38% 0.13% looks to team up February QE DOW DOW with Tata Dow & Brent before going to press

Pacific Alliance Meeting Pound on Oil steadies but worst run glut worries versus Euro

THE pound headed for its long- persist est losing streak against the euro since August amid evi- dence that the UK’s decision Crude inventories Russia agreed last year to cut to leave the European Union is output by around 1.8 million starting to hit economic data Market confidence barrels per day in the first half just as European policy mak- faltered after news of 2017, but so far the move has ers strike a more positive note of another big rise in had little impact on inventory on the region’s own prospects. US crude inventories. levels. Sterling depreciated for a The supply-demand "Steep price falls in the last sixth day versus the euro, and gap is still a concern. two days amid building US also headed for a second inventories show that the mar- week of declines against the Crude oil inventories ket remains concerned about dollar. the supply-demand balance," Reports yesterday in the United States NAB Group Economist Phin Zie- showed manufacturing, swelled by 8.2mb bell said. industrial and construction last week to a record Crude oil inventories in the output all shrank in January FROM LEFT: Finance Ministers Mauricio Cardenas of Colombia, Rodrigo Valdes of Chile, 528.4mb. United States, the world's top from the previous month, oil consumer, swelled by 8.2 Jose Antonio Meade of Mexico and Alfredo Thorne of Peru shake hands during a meeting adding to evidence that the million barrels last week to a of the "Alianza del Pacifico" (Pacific Alliance) in Santiago, Chile, yesterday. trend of robust data follow- London record 528.4 million barrels. ing the Brexit vote may be Reuters US oil and gas drilling has coming to an end. The euro is also picked up, with producers also strengthening after Euro- il prices steadied planning to expand crude pro- pean Central Bank President yesterday after duction in North Dakota, Mario Draghi gave a more dropping to their Oklahoma and other shale G20 plan to stave off debt crises stalls upbeat outlook for the lowest in more regions, while output has region’s economy at a press than three months, jumped in the Permian, Amer- London International Monetary Fund economies issue first to make conference yesterday. Opressured by heavy over- ica's largest oilfield. Reuters report into such debt, which investors more comfortable with The UK’s recent resilience supply despite Opec-led That has undermined bull- could offer poorer economies the bonds. But this has hit the was mainly due to the rise in production cuts. ish sentiment and cast doubt on lobal efforts to create a some respite if they fell on hard buffers for the moment because consumer debt, “which is Brent crude oil was down how long Opec will be willing market for growth-linked times and stave off the kind of no country wants to take the risk unsustainable,” said Erik 10 cents at $52.09 a barrel by to cut output if prices keep Gbonds that could help defaults seen recently in the of being the first to issue the Weisman, chief economist 1445 GMT, after falling 1.7 per- falling. avert debt crises have stalled likes of Puerto Rico and Ukraine. bonds, according to the sources. and fixed-income portfolio cent on Thursday and 5 percent Senior Saudi officials told because none of the wealthy The G20's technical staff "The technical discussions manager at MFS Investment the day before in its biggest per- US oil firms in a closed-door economies backing the drive are were briefed earlier this year on have suggested no big bang issu- Management. centage decline in a year. meeting they should not assume willing to take the lead and be the IMF findings, which they will ance is expected as of now or “I am bearish on the US crude was 5 cents lower Opec would extend output curbs the first to issue, sources told feed back to finance ministers coordinated issuance that was pound and I think it will be at $49.23 a barrel. The contract to offset rising production from Reuters. and central bank governors initially thought may be possi- lower a year from now. Sim- fell below $50 on Thursday for US shale fields, industry sources Growth-linked, or GDP- before their G20 meeting in Ger- ble," said one of the sources who ilarly, while the U.K. economy the first time since December. told Reuters on Thursday. Ana- linked, sovereign bonds allow a many on March 17-18. declined to be named as the dis- will not unravel due to Brexit, US crude is on track for a drop lysts said they expected a period country's repayments to fluctu- They were told that the main cussions were private. I would expect the process to of more than 7 percent this of market consolidation after ate depending on its level of obstacles to the project was a "It was more a recognition take a toll on growth for many week, its biggest weekly fall for the heavy falls this week, but economic growth or contraction lack of investor demand and the of the work that was done, a years to come.” five months. there could be another sell-off - meaning, for example, a gov- stigma attached to such instru- sharper understanding of the Yesterday's reports come Market confidence faltered if investors were forced to sell ernment would pay less if its ments, according to two sources key impediments and a possi- after housing data yesterday after news of another big rise loss-making contracts. revenues were hit by close to the discussions. These ble way forward. There is a little showed demand had in US crude inventories that "The market remains over- recession. kind of bonds have so far only more work to be done before dropped to a six-month low have built steadily to record whelmingly long and any Policymakers for the Group emerged from debt restructur- these things take off." last month while data last highs as US oil production has further weakness will force of 20 major world economies ings as a way to coax creditors The IMF's report on state- week showed Britain’s key grown this year. additional reductions," Saxo last year agreed on an initiative to accept writedowns. contingent debt, which includes services sector expanded at The Organization of the Bank's head of commodity to create a market for the bonds. One plan mooted by the G20 GDP-linked bonds, is due to be the slowest pace in five Petroleum Exporting Countries strategy, Ole Hansen, told Reu- They commissioned an last year was to have advanced published in late April. months in February. and other exporters including ters Global Oil Forum. China expects 'relatively stable' yuan after losing 7% value last year

Beijing exchange rate will be relatively overseas entice investors away Opening the session on Sun- concerns of mounting financial AFP stable," Zhou said in Beijing. from the Chinese market. day, Premier Li Keqiang risks. He added however that "no Trump, however, has repeat- announced a 2017 official eco- Zhou said monetary policy hina's central bank gover- one can predict exactly what edly accused Beijing of nomic growth target of "around would remain neutral, adding nor said yesterday the uncertainties and events" will deliberately weakening the yuan 6.5 percent, or higher if possi- that there was a danger that too Cyuan should be "relatively impact the yuan. to boost exports and has threat- ble", citing an even "more much loosening could fuel asset stable" this year after losing "Of course, the foreign ened to officially declare it a complicated and graver situa- bubbles. seven percent of its value in 2016 exchange market is always very currency manipulator and slap tions" this year. The financial-asset manage- amid accusations by US Presi- sensitive, and will follow the hefty tariffs on its goods. Last year's growth came in ment market is "somewhat dent Donald Trump of currency overall global economy, as well Zhou's remarks came on the at 6.7 percent, lowest since 1990. chaotic" and supervision of risks manipulation. as continuing fluctuations in sidelines of the annual meeting The central bank has quietly must be strengthened, Zhou People's Bank of China Gov- growth in more than a quarter China." of China's Communist-control- tightened monetary policy, rais- added. ernor Zhou Xiaochuan (pictured) of a century last year, with ben- The country has struggled to led rubber-stamp parliament, ing short-term borrowing rates Financing must "serve the said the world's number-two efits for the yuan. prop up the yuan in the face of a where the ruling party approves for the first time since 2013 after real economy," instead of "going economy was expected to stabi- "Under these circumstances, huge flight of capital as the pros- legislation and sends signals an explosion of lending last year here and there without ever lise after posting its slowest we believe this year that the yuan pects of better and safer returns about its plans for the year. to support growth led to reaching the real economy." 18 BUSINESS SATURDAY 11 MARCH 2017

China auto US economy adds 235,000 jobs in February sales jump

meeting. Job gains have averaged in February Payrolls 209,000 per month over the past Last month’s brisk clip three months. The economy Shanghai of hiring was needs to create roughly 100,000 AFP accompanied by jobs per month to keep up with growth in the working-age utomobile sales in steady wage growth, population. China jumped more with average hourly “By any measure this report than 22 percent year- earnings rising 0.2%. A is consistent with an exceedingly on-year in February, an The economy needs to healthy labor backdrop and, I industry group said yesterday, create roughly think more critically, it’s a in fresh evidence that a cut in 100,000 jobs per number that will embolden the purchase taxes was support- month to keep up with Fed to raise rates in March,” said ing demand in the world's growth in the Tom Porcelli, chief US economist largest car market. at RBC Capital Markets in New Sales reached 1.94 million working-age York. units last month, up 22.37 per- population. US short-term interest rate cent compared to the same futures initially rose after the time last year, the China Asso- Washington data, while prices of US Treas- ciation of Automobile Reuters uries pared earlier losses. US Manufacturers (CAAM) said in stock index futures were trading a statement. S employers hired higher, while the dollar was People wait in line to enter the Nassau County Mega Job Fair at Nassau Veterans Memorial The result provided fresh workers at a robust weaker against a basket of Coliseum in Uniondale, New York. evidence of solid sales in the pace in February, currencies. sector after authorities slashed beating expecta- Last month’s brisk clip of hir- highest level since March 2016. global economy, has left some utilities, expanded payrolls in a purchase tax in late 2015. tions, and wages ing was accompanied by steady The employment-to-popu- economists expecting that the February. Manufacturing Auto sales surged nearly 14 per- Ugrinded higher, which could give wage growth, with average hourly lation ratio rose to 60 percent, Fed could increase rates much employment increased 28,000, cent in 2016, marking the the Federal Reserve the green earnings rising 6 cents, or 0.2 per- the highest since February 2009, faster than is currently antici- the largest gain since August fastest full-year growth in three light to raise interest rates next cent. January’s wage growth was from 59.9 percent in January. pated by financial markets. 2013, as rising oil prices fanned years. February's sales marked week despite slowing economic revised up to 0.2 percent from the With the labour market near The US central bank lifted its demand for machinery. a drop from January of 23.03 growth. previous 0.1 percent gain. That full employment, wage growth benchmark overnight rate in Construction payrolls surged percent, the CAAM said,, blam- Nonfarm payrolls increased lifted the year-on-year increase could speed up as companies are December and has forecast three 58,000, the biggest gain since ing the Chinese New Year by 235,000 jobs last month as in wages to 2.8 percent from 2.6 forced to raise compensation to rate increases for 2017. March 2007, boosted by warmer holiday that lasted for much of the construction sector recorded percent in January. retain employees and attract Data ranging from trade to weather. the first half of last month. its largest gain in nearly 10 years The unemployment rate fell skilled workers. consumer and business spend- Retail sector employment fell Originally set at 10 percent, due to unseasonably warm one-tenth of a percentage point According to economists, ing suggest the economy slowed 26,000, the biggest decline since China halved the tax rate for weather, the Labor Department to 4.7 percent, even as more peo- wage growth of between 3 per- further early in the first quarter December 2012, after a gain of small-engine passenger cars in said yesterday. The economy ple entered the labour market, cent and 3.5 percent is needed after growing at a 1.9 percent 39,900 jobs in January. Utilities October 2015 to buoy sales. created 9,000 more jobs in encouraged by the hiring spree. to lift inflation to the Fed’s 2 per- annualised rate in the final three shed 1,000 jobs last month However, the finance ministry December and January than pre- The labour force participation cent target. But inflation is months of 2016. The Atlanta Fed because of the milder weather. announced last month that the viously reported. rate, or the share of working-age already firming, in part as com- is forecasting gross domestic Government payrolls increased tax would be increased to 7.5 Fed Chair Janet Yellen sig- Americans who are employed or modity prices rise. product growing at a 1.2 percent by 8,000 jobs despite a freeze percent beginning January 1 of nalled last week that the US at least looking for a job, Rising inflation, together rate this quarter. on the hiring of civilian federal this year and restored to the central bank would likely hike increased one-tenth of a per- with a tighter labor market, stock All sectors of the economy, government workers that went original rate of 10 percent next rates at its March 14-15 policy centage point to 63 percent, the market boom and strengthening with the exception of retail and into effect in January. year.

Russian oil major turns to Petrocas to boost trade Buyout firms losing as Nordic valuations soar Moscow In response, Rosneft has Yakobashvili said, adding it was Reuters built ties with global trading now seeking to expand trading houses Trafigura and Glencore, operations in more southern Oslo valuation”. Unlike last year, when former Russian juice as well as companies such as European nations. Bloomberg most of the companies doing magnate who has crude Petrocas that are based closer In 2014, Petrocas sold about spinoffs were small or mid-sized, A terminals and other to home. 1 million tonnes of oil products ith investors piling 2017 and 2018 will be character- assets in the Caspian and Black “We are pursuing joint stra- per year. That had grown to 3.5 into stock markets ized by separate listings by some Sea region says he is expand- tegic interests with Rosneft and million tonnes in 2016. W again, Nordic compa- of Sweden’s biggest companies, ing cooperation with are discussing joint involve- Yakobashvili said this nies interested in selling off according to stock exchange Kremlin-controlled Rosneft to ment in infrastructure projects would expand this year as he parts of their business seem to announcements to date. At least help the oil major boost trad- in the south Caucasus and targets markets in Greece, Italy, be finding a separate stock- five Swedish corporations have ing from Turkey to southern beyond,” Yakobashvili told Bulgaria, Romania, Turkey and market listing more appealing already said they’re considering Europe. Reuters. Germany. than turning to private equity separate listings for units, includ- Rosneft’s partnership with “Petrocas helps (Rosneft) Petrocas was looking at funds. ing benchmark companies such David Yakobashvili (pictured) increase margins when selling firm Wimm-Bill-Dann. PepsiCo starting crude oil trading and "We’ve seen a continuous as Lundin Petroleum AB and and his Petrocas oil products refined products and deliver- bought a controlling stake in was talking to firms in Kaza- trend, appetite, for spinoffs while Svenska Cellulosa AB. trading and logistics firm is ing them to end users in Europe the company in 2010 in a deal khstan and Turkmenistan, he the market has been strong,” For investors, the develop- part of efforts to build new and Turkey,” he said in an valuing Wimm-Bill-Dann at said. Petrocas, which buys vol- Adam Kostyal, head of European ment spells greater transparency, markets as the Russian oil interview. more than $5bn. umes from Rosneft at tenders, listings at Nasdaq, said by phone. Kostyal said. It also increases the major grapples with US and Born in the former Soviet Petrocas, which controls oil already has contracts with oil “This has been driven by a pool of stocks in different indus- EU sanctions imposed in 2014 Union’s republic of Georgia, terminals and gas stations in firms such as Kazakhstan’s number of aspects, but mainly tries, helping investors diversify. over Moscow’s activities in Yakobashvili, 60, set up Petro- the Caucasus and Black Sea Kazmunaigaz, Austria’s OMV, because the market provides The trend adds to a record in Ukraine. cas in 2008 to supply Georgia area, operated mostly as a Greek Motor Oil Hellas, Italy’s such a good valuation for these Nordic stock listings, with the Sanctions have stopped and its neighbours with refined logistics company until Rosneft Saras and France’s Total. companies. Spinoffs have, from amount of capital raised in IPOs Rosneft, the world’s biggest products. The initiative was acquired 49 percent in the firm Turkey is a key growth a historical perspective, given and new listings on Nasdaq’s listed oil company by output, part of an effort to diversify in 2014 for $144m. market for Petrocas, which shareholders a better value.” Nordic exchanges hitting €7.8bn working with Western banks away from Russia. “Petrocas has become a plans to ship 900,000 tonnes Kostyal says the preference ($8.2bn) last year, up from and scuppered its bid to buy a In 2010, Yakobashvili reliable partner to help solve of diesel in 2017 to Turkey’s now for splitting units off by dis- €5.94bn in 2015. That put the trading unit from Morgan divested from what had been logistical tasks in the Caspian Demiroren Group under a long- tributing them to shareholders Nordic region ahead of the rest Stanley. his main asset, juice and dairy Sea and the Caucasus,” term deal. through a separate listing is of Europe, beating both London “undeniably driven by and Euronext NV’s markets. Free Zone creation 'will ensure growth' of Abu Dhabi's real estate

The Peninsula place on the first day of Cityscape promote under the 2030 vision, conference, hosted in collabo- principles in our tourism growth speaker at the Cityscape Abu Abu Dhabi, which runs from said Plumb. ration with JLL, will also strategy, and the development Dhabi Conference will reveal the mproving the transparency of April 18 to 20 at the Abu Dhabi “Free zones will attract addi- explore emerging trends that of a set of distinct districts with recent performance of each real the market and creating free National Exhibition Centre tional investment and are redefining investment clear value propositions for tour- estate sector for the first quarter Izones will be key to attract- (ADNEC). employment as they create hubs opportunities in Abu Dhabi’s ists across all three regions of the of 2017 and discuss the best ing foreign investment into the With more than 25 free of similar activities and gener- hospitality sector, with a par- Emirate focusing on cultural, lei- investment opportunities with Abu Dhabi real estate sectors zones in Dubai, compared to ate a simplified regulatory ticular focus on upcoming sure and nature offerings has key industry players. says industry expert. Abu Dhabi’s five, Craig Plumb, environment, with lower oper- landmark projects that are cre- been identified as core deliver- “Abu Dhabi’s market expe- With the growth of Foreign Head of Research at JLL and ating costs and greater freedoms. ating new avenues for able to achieve this,” said Al rienced a very major upswing Direct Investments (FDIs) in the moderator at the conference, “Currently the market is stakeholders and investors. Busaidy. from 2013 to 2014, led by the Emirate increasing by 7 percent believes the concept of free going through a cycle, which is Omar Al Busaidy, Abu Dhabi “Implementing a zonal tour- residential sales market, with last year according to the Statis- zones needs to be developed perfectly normal for any real Experience Development Unit ism development model to prime residential prices grow- tics Centre – Abu Dhabi (SCAD), further to enhance the capital’s estate industry worldwide. For Head at Abu Dhabi Tourism & develop attractions and experi- ing at 25% per annum, the pace the government is making exten- residential, office, commercial buyers who are looking at the Culture Authority will deliver ences in harmony with or of which was unsustainable,” sive efforts to improve standards, and warehouse real estate property sector as a long term a key note speech and provide emphasising the area’s business, Dudley said. regulations and buying oppor- sectors. investment now is the perfect an exclusive insight into desti- geographical or natural assets Cityscape Abu Dhabi will tunities, motivating foreign “The concept of free zones is time to buy. nation Abu Dhabi and how acts as a catalyst for SME busi- provide the perfect platform for companies and individuals to more advanced in Dubai and in As the UAE market grows building new investment ness development opportunities investors to find opportunities continue investing in the local order to redress this balance and matures the volatility of the hotspots and creating long term and our Tourism Investment across all price points in the economy. between the two emirates, Abu sector will decline, making management prospects is key Promotion service allows us to region, as well as the latest Supporting the creation of Dhabi needs to develop its exist- returns more stable and pre- to creating an attractive hub for foster partnerships between international developments, as new investment environments ing free zones more aggressively dictable, which in itself will local and international real international investors and local more than 130 exhibitors from will be one of the key topics and consider launching addi- attract more investors,” added estate investors. entrepreneurs.” around the world come debated at the Cityscape Abu tional free zones for those Plumb. “Partnership with the private David Dudley, Regional together to showcase their lat- Dhabi Conference that will take industries that it seeks to The Cityscape Abu Dhabi sector is one of the guiding Director of JLL and headline est projects. SATURDAY 11 MARCH 2017 BUSINESS 19

Volkswagen looks to team up with Tata IN-DEPTH

Frankfurt Partnership Germany's," Dudenhoeffer said. Oil tanks on accelerated AFP But with lower average Working with Tata incomes than in China, the erman carmaker will offer the world's second-most-populous long-liquidation Volkswagen and Wolfsburg-based country demands a different India's Tata Motors group specific approach. rude oil was added plan a future "strate- market knowledge as Indian buyers prefer to the growing list gic partnership" in well as expertise. affordable "budget cars", of commodity cas- Gthe subcontinent to jointly Dudenhoeffer explained, while ualties on develop parts and vehicles, the Indian buyers prefer Chinese drivers are more inter- Wednesday, two firms said in a joint state- affordable budget ested in high-tech features like CMarch 8, as market jitters ment yesterday. cars, while Chinese internet apps and mobile ahead of next week's Federal Europe's and India's largest drivers are connectivity. Reserve meeting continue. auto manufacturers signed a interested in high- Czech Republic-based VW The Federal Open Market memorandum of understanding subsidiary Skoda -- which Committee is widely tech features. (MoU) "to unite the expertise of operates an Indian plant in expected to give another 25 the two carmakers in develop- Aurangabad, Maharashtra state basis point notch to the Ole Hansen ing joint vehicle components and -- will take the lead in work- upside when it meets on even possible concept vehicles," conditions to offer appropriate ing with Tata, hammering out March 15. This, combined the statement read. mobility solutions for the new, the details of the partnership with strong US data, has Commodity Working with Tata will offer fast-growing car markets" with expected to double from just "in the coming months", Skoda yields are now honing in on the Wolfsburg-based group the deal, chief executive Matth- under 3.0 million in 2016 to CEO Bernhard Maier said. the December 15 high of exporters have seen "specific market knowledge as ias Mueller said. more than 6.0 million in 2030, As well as the Skoda factory 2.64%. their currencies well as local development exper- While the path to neighbour- said industry expert Ferdinand in India, VW already turns out Commodity exporters come under tise," the statement continued, ing China is well-trodden by Dudenhoeffer of Germany's its own-brand cars at a facility have seen their currencies pressure from the adding that VW wants to expand western carmakers, India still CAR research centre. in Pune and has several sites come under pressure from its product range in India. offers plenty of room for expan- "Even before 2020, India's belonging to truck units MAN the renewed weakness hit- renewed weakness VW aims to "create the sion. Annual car sales are car market will be bigger than and Scania. ting the commodity sector. hitting the Leveraged funds have been commodity sector. active buyers of AUD, NZD, and CAD futures for several UK industrial weeks with interest in these Japan rejects US demands for products hitting a four-year rise in US stocks to a new high during the week ending record was driven by rising output drops February 28. imports from Opec. Saudi better access to car market As you would have seen Arabia, in fact, shipped the from my weekly updates on most oil to the US since in January speculative positions held by August 2016. This is the Tokyo funds, there has been a major wrong signal to send consid- Reuters build up in bullish commod- ering the intense market BRITAIN'S industrial out- ity bets during the past year. focus on the weekly EIA apan rejected US demands for put recoiled in January as The trend only accelerated report. more access to Japan's car the nation prepared to exit following both the US elec- WTI crude oil found sup- Jmarket yesterday, casting the European Union, official tion and the Opec production port ahead of the doubt over whether it can avoid data showed yesterday. cut agreement back in psychological level at $50/ friction over autos and agricul- Industrial output slid 0.4 November. barrel with $50.26/b being ture imports at high level percent compared with activ- The fact that the Bloomb- the 38.2% retracement of the bilateral talks on economic rela- ity in December, with a erg Commodity index has November-to-January rally. tions next month. particularly weak contribu- been trading sideways for A recovery from here would The joint economic dia- tion from manufacturing, the almost a year did not dis- signal that this was "just" a logue, to be chaired by Deputy Office for National Statistics suade this build in speculative weak correction within an Prime Minister Taro Aso and US (ONS) said in a statement. bets, especially in oil, gold, uptrend. If, however, we Vice President Mike Pence, The file photo shows Japan's Chief Cabinet Secretary Although moderately bet- silver, copper, soybeans, and break lower the market will could re-write ties between the Yoshihide Suga speaking to media during a news conference. ter than expectations for a sugar. be focusing on the 50% world's largest and third-larg- 0.5-percent decline, the lat- Bullish oil bets accounted retracement and 200-day est economies. policies, but this year's state- after taking office in January. est industrial output data for close to 40% of the total moving average – both of "We do not impose import ment could carry more weight If pressed on agriculture, followed a 0.9-percent rise hedge fund long position; which can be found around tariffs on cars, and we do not given the new US administra- Japan could fall back on some in December. during the past month, the $48.75/b. impose any non-tariff barri- tion's emphasis on parts of the TPP agreement, Manufacturing output, failure to break higher had A further break below ers," Chief Cabinet Secretary renegotiating trade deals. some economists say. which excludes mining and left many traders holding a $47.18/b could signal a return Yoshihide Suga told reporters. Japanese officials have "The US would like to quarrying, electricity, gas and non-performing long to the November low. "Our position is that Japan's indicated that they would pre- increase agriculture exports, water supply, slid 0.9 percent increasingly frustrated. On the upside we will be auto market is already open. fer the talks focused on but Japan has already made in January from December. This frustration has been keeping an eye on $51.9/b as This is something that will be infrastructure, foreign direct some concessions for the Construction activity also seen during the past couple a break through this would settled in our bilateral investment and energy to Trans-Pacific Partnership," shrank by 0.4 percent, which weeks with signs of long-liq- remove some of the short- dialogue." avoid more thorny issues like said Daiju Aoki, economist at contrasted with a 1.8-percent uidation beginning to term danger of further long Suga issued the rebuff after autos and agriculture. UBS Securities. expansion in the previous emerge. During the week liquidation. the US government submitted Japan had already agreed "If the United States uses month. ending February 28, funds a statement to the World Trade to gradually lower tariffs on US taxes to curb auto imports, that The ONS also said that reduced a record long posi- (Ole Hansen is the Head Organization on Wednesday beef and pork for the Trans- would severely damage Britain's deficit in goods and tion in WTI and Brent crude of Commodity Strategy at Saxo saying "a variety of non-tariff Pacific Partnership (TPP), a Japan's auto industry. I hope services, the gap between oil by 6% to 890,360 lots (890 Bank. The view expressed in barriers impede access to multilateral trade deal that was this can be avoided." exports and imports, stood million barrels). the column is that of the Japan's automotive market." left in tatters after US President Autos, which have been a unchanged at £2.0bn ($2.4 bn, Ninth consecutive weekly author.) The US government also Donald Trump withdrew from source of trade friction before, €2.3bn) in January. said Japan's agriculture sector the pact. could be more difficult. Trump "The latest economic data remains protected by "sub- The new US president has has sent mixed signals on for the UK has come in on the stantial" barriers, giving the clearly indicated that he pre- whether he supports a Repub- soft side, with manufacturing clearest indication yet of fers to curb free trade to lican proposal to use a border production and industrial where battle lines will be protect U.S. jobs, raising fears tax to lower imports of specific production both contracting Gold hits lowest since January drawn in the upcoming bilat- of a return to trade friction that goods. in January," noted analyst eral talks. marred US-Japan relations in The potential damage to David Cheetham at XTB In 2015 the US government the 1980s. Trump also rattled Japan's economy would be sig- brokerage. submitted a similar statement Japanese policymakers by crit- nificant because it relies on its The manufacturing to the WTO as part of a regu- icizing the small number of US auto sector to drive exports number in particular could be lar review of Japan's trade auto exports to Japan shortly and create jobs domestically. seen as a cause for concern. EU may regulate takeovers of strategic firms London 1047 GMT, while US gold futures Reuters for April delivery were down Brussels a vaguely defined "economic Some EU countries have and technology, the paper said. $6.8 an ounce at $1,196.40. "We Reuters prosperity", according to the their own rules to protect stra- The plan would need the old fell to its lowest in had a really quite phenomenal proposal from the European tegic firms, but this would be approval of all Commission more than five weeks number in the ADP payrolls on he European Union Commission's industry depart- the first at the EU level and departments, including trade Gyesterday as traders took Wednesday, and when you get plans measures to ment seen by Reuters. would go beyond the usual officials, who are usually less to the sidelines ahead of US such a big move in private pay- block "politically- The paper makes several scope of such measures which favourable to protectionist payrolls data, which will be rolls, it would be highly motivated" foreign references to China, citing, as are usually related to national measures. EU states and the closely watched for clues on the surprising if the official numbers investment, after Ger- one hypothetical example of an security. European Parliament would outlook for US monetary moved lower," Mitsubishi ana- Tmany, France and Italy asked it undesirable deal, a company Under the proposal, the EU then have to adopt the propos- policy. lyst Jonathan Butler said. to act against takeovers in sec- receiving funds from the Chinese could block takeovers by a als. To avoid an excessive Growing expectations that A Reuters survey of econo- tors that could harm Europe's government to enable it to buy company whose motivation is concentration of power in Brus- the US Federal Reserve will mists predicted that non-farm strategic interests. a European company to make a "just for the purpose of dispos- sels at a time of rising raise interest rates this month payrolls probably rose by The proposal could give the "strategic penetration of the EU ing its overcapacity" - which euroscepticism, the proposal following a better than expected 190,000 jobs last month. Fed EU - which can already block market". could include sectors such as suggests EU states would main- ADP payrolls report on Chair Janet Yellen said last week takeovers on antitrust grounds Germany has been making steel where Europe accuses tain the right to allow or deny Wednesday have pushed gold the central bank was poised to - power to scrutinise "invest- protectionist noises after a spate China of dumping under-priced a takeover even after EU down 3 percent this week, lift rates provided jobs and infla- ments in the EU of strategic of Chinese takeovers of its tech- goods. vetting. potentially its biggest weekly tion data held up, comments importance both from an eco- nology companies. Home The blocking mechanism Under a bolder option of the loss in four months. seen as cementing plans for an nomic and security appliance maker Midea's acqui- could also apply to takeovers plan, a new EU agency would The metal hit a low of increase at the Fed's March 14-15 perspective". sition of robot-maker Kuka was of EU companies by an EU- be set up to examine foreign $1,194.55 an ounce yesterday, meeting. Gold is highly sensi- That would include defence, just one of the Chinese deals last based subsidiary of a foreign investments, although this could after slipping below $1,200 an tive to rising US interest rates as transport infrastructure and crit- year with a total worth of more firm, or even in cases of "infil- attract EU bashing if an invest- ounce in the previous session these increase the opportunity ical and cutting-edge than $10bn, about 40 times as tration of the management with ment is rejected to the detriment for the first time since January cost of holding non-yielding bul- technologies and could be much as in 2015, according to individuals from non-EU coun- of EU companies' growth pros- 31. Spot gold was down 0.38 lion, while boosting the dollar, extended to deals that put at risk Thomson Reuters data. tries" who could access data pects, the paper said. percent at $1,196.19 an ounce at in which it is priced. 20 SATURDAY 11 MARCH 2017 BUSINESS VIEWS

Opec market strategy faces its biggest test

Alex Longley Bloomberg

pec's strategy to balance the oil market and bol- ster prices is facing its biggest test. The producer Ogroup is aiming to revamp the market by erod- ing a crude inventory surplus that’s depressed prices since 2014. A deal to cut output announced at the end of November, intended as a catalyst for trimming glo- bal stockpiles, had the side-effect of triggering a surge in US production and a jump in the nation’s invento- A view of People's Bank of China. ries to an all-time high. That’s prompted crude to give up a chunk of its post-deal gains. With the focus now shifting to what the Organiza- tion of Petroleum Exporting Countries will do next, China corporate debt levels here are six charts indicating which way the oil mar- ket could be starting to turn. WTI and Brent sank by the most in more than a year on Wednesday, with U.S. crude subsequently fall- ing through $50 a barrel for the first time since excessively high; no quick fix December. “The market will be in limbo for a few days, the question is how low can it go,” said Richard Fullarton, founder of London-based commodity hedge fund, Matilda Capital Management. “There’s been so reforms. Throughout the news conference, in debt and discourage speculative activity, much effort by OPEC and non-OPEC to show high the jocular governor smiled and amicably though it is treading cautiously to avoid Kevin Yao and Yawen Chen compliance, that it would be strange for engaging with the deputy governors beside hurting economic growth. It surprised it to fall apart now.” Reuters him as well as the journalists. Unlike many financial markets by raising short-term The aim of the supply cuts has been government officials, Zhou did not refer to interest rates in January and February by to turn the oil market upside down into hina's corporate debt levels are prepared material when responding to marginal amounts, and is expected to bump a structure too high but it will take time to questions. them higher in coming months, though an known as back- bring them down to more China's corporate debt has soared to 169 increase in its benchmark policy lending wardation. That manageable levels, the head of the percent of gross domestic product (GDP), rate is seen as unlikely this year. Options markets means prices in central bank said according to figures from the Bank for Beijing has set a more modest economic are also turning the short-term Cyesterdayunderlining an uphill battle to put International Settlements. growth target of around 6.5 percent this increasingly bearish are at a premium the world's second-largest economy on a China needs to first stabilise its overall year, easing from last year's 6.5-7 percent to those further more sustainable footing. debt levels before gradually reducing them, range, ostensibly to give policymakers more on future prices. The out, swelling Chinese leaders have pledged to contain deputy central bank governor Yi Gang said room to focus on financial risks. difference in the cost Opec revenues debt and housing risks in 2017 after years of at the same briefing. The economy ultimately expanded 6.7 of bearish and bullish while limiting credit-fuelled expansion, which has been China's debt-to-GDP ratio rose to 277 percent last year, but much of the growth oil contracts, known at those of its com- propelled by the need to meet official percent at the end of 2016 from 254 percent came from record lending by state banks petitors. economic growth targets. the previous year, with an increasing share and higher government spending on the skew, has moved However, the But many analysts remain doubtful over of new credit being used to pay debt servicing infrastructure, which has helped revived sharply in favour of difference the government's commitment to follow costs, UBS analysts said in a note. the long ailing and heavily indebted falling prices. between WTI through on potentially painful reforms, China's credit growth has been "very fast" industrial sector. prices for this especially if growth falters. by global standards, and without a Bank lending this January was the December and "Non-financial corporate leverage is too comprehensive strategy to tackle the second highest on record and it did not next has slumped back into contango, while the the high," People's Bank of China Governor Zhou overhang, there is a growing risk it will have slow as much as expected in February. "If nearest 9 Brent crude contracts are also now in that Xiaochuan told reporters at a news a banking crisis or sharply slower growth or there is too much money in the economy, market structure. “Everything has been put in doubt,” conference on the sidelines of the annual both, the International Monetary Fund in fact it is very harmful to the economy Olivier Jakob, managing director of consultancy Petro- parliament session. warned late last year. as it might lead to problems such as higher matrix GmbH, said by phone. “It shows that the market Efforts will be made to contain debt The central bank's tilting towards a inflation and asset price bubbles," Zhou is still very fragile.” levels, including restructuring of firms with neutral stance would help with China's said. Options markets are also turning increasingly heavy debt burdens, alongside a push to supply-side reforms, Zhou said, reiterating Turning to the yuan currency, Zhou said bearish on future prices. The difference in the cost of reduce excess industrial capacity, he said. that it would be "prudent" while reminding market expectations of the yuan's bearish and bullish oil contracts, known at the skew, Banks will withdraw support for markets that the central bank has many movements have shown "big changes" this has moved sharply in favor of falling prices. That fol- financially unviable firms, he added, policy tools at its disposal. year as China's economy stabilises. Zhou lows the second highest volume of options traded repeating pledges by other officials last year In recent months, the said he expected the yuan to be basically ever on Nymex’s WTI contract on Wednesday, as to drive such "zombie" firms out of the PBOC has cautiously moved stable thisyear, while conceding that some investors hunted out near-term protection against market. to a modest tightening bias in fluctuations are normal. declining prices. A slump below last November’s price "I personally think this process is a bid to cool explosive growth Despite repeated interventions by levels would be the last thing Opec planned for when relatively medium-term. It won't have very authorities last year, the yuan still fell 6.5 it agreed to cut supply. This week’s price drop repre- obvious results in the short-term because percent against the dollar. sents “the first proper challenge to Opec and its resolve the existing stock (of debt) is very large," he It has steadied early this year as to cut production,” said Ole Hansen, head of com- said. Efforts will be made to authorities moved to tighten controls on modities strategy at Saxo Bank. Measures by local governments to cool contain debt levels, including capital outflows and as the dollar's rally lost The slump in prices may also be attracting more rising house prices will slow mortgage restructuring of firms with steam. But it started to wilt again in recent short sellers, a further dent in Opec’s bid for higher growth to some degree, but housing loans sessions on growing expectations that the prices. The number of WTI contracts outstanding rose will continue to grow at a relatively rapid heavy debt burdens, alongside US central bank will raise interest rates as back to near record levels as prices fell on Wednes- pace, Zhou said. a push to reduce excess soon as next week, buoying the dollar. China day, often a sign of new bets on falling prices. Zhou, 69, took control of the PBOC in industrial capacity. burned through nearly $320 bn of reserves 2002 and is the architect of China's financial last year to shore up the yuan. Bulls reign in Brazil as reform push overshadows scandal Julia Leite, Paula Sambo and ignoring signs of a sluggish econ- hospital, we still need to go splashed across the front pages of point to growth as one of their Aline Oyamada omy, chaotic politics and a new through surgery -- pension reform, newspapers suggest more than 100 main concerns. Consumers are still Bloomberg chapter in a corruption scandal labor reform, fiscal reform." politicians will be cited by name, highly indebted and companies that threatens to paralyze the Bilyk, who founded Rio Bravo including Temer and some of his reluctant to invest, and there are t’s hard to find a pessimist government. with former central banker Gus- top allies and cabinet members -- signs that the commodities rally among Brazil investors these That investors are turning a tavo Franco, says traders are all of whom have denied that has supported the country’s days, even though there’s blind eye to Brazil’s problems is pricing in the government getting wrongdoing. Prosecutor General exports is coming to an end. Prices plenty to be worried about. all the more surprising consider- 80 percent of what it wants with Rodrigo Janot is expected to are starting to falter on concern Traders who pushed the ing just how recently its markets the fiscal reforms. If the adminis- request investigations based on the demand won’t soak up supply. Ireal and Ibovespa stock index to and economy seemed to be in free tration caves in to demands to plea-bargain testimony in the next "What’s conspicuously miss- some of the world’s biggest gains fall. The currency plunged to a change the unpopular measures few days. ing is economic growth," said over the past year see a rosy out- record in 2015 and stocks sank to by more than that -- say, 50 per- Adding to the uncertain out- Nicholas Spiro, a partner at Lon- look for President Michel Temer’s a seven-year low amid the worst cent of the original plan -- markets look is an economy that hasn’t don-based Lauressa Advisory Ltd., chances of pushing through pen- recession in a century and politi- will slide. recovered nearly as quickly as which advises asset managers. sion, labor and tax reforms that cal turmoil that ended in the The government’s reform some observers expected under "The economy remains mired in are needed for Brazil to regain president’s impeachment. But all agenda could be upended by the Temer. Data released March 7 recession, which makes it that investment-grade status. They’re was forgiven when Temer took release of testimony from more show Brazil’s economic rout deep- much harder to implement fiscal over with a plan to revive growth than 70 executives at construction ened in the fourth quarter as reforms and drives a dangerous and shore up the budget, while the giant Odebrecht SA, which has investors and consumers remained wedge between sentiment and central bank pledged interest-rate admitted to paying bribes to pol- on the sidelines amid government underlying fundamentals." The currency plunged to a record cuts to help revive the economy. iticians and political parties in austerity measures. Gross domes- But bulls are focused else- in 2015 and stocks sank to a seven- "Brazil is in the I.C.U. and exchange for lucrative contracts. tic product contracted 0.9 percent, where, mainly Temer’s pledges to year low amid the worst recession showing some reaction to a mas- Local media are dubbing the worse than the median analyst get the economy humming again in a century and political turmoil sive dose of medicine,” said Paulo release of details gleaned from estimate for a 0.5 percent decline. and fix the fiscal mess that caused Bilyk, the chief investment officer their plea bargains “the end of the While economists forecast Brazil to be downgraded to junk that ended in the president’s of Rio Bravo Investimentos, which world” because of the likelihood Brazil’s GDP will expand in 2017 in 2015. They point out that so far, impeachment. manages 11 billion reais ($3.5bn) numerous public figures could be for the first time in three years, the new government has consist- in assets. “But to get out of the implicated in the schemes. Leaks even the most optimistic investors ently delivered on its promises.