MONDAY, MAY 8, 2017 BUSINESS ‘En Marche’ for a third interest rate hike NBK MONEY MARKETS REPORT hile the political soap opera contin- and continued to surge reaching a six-month the indices that track new orders and growth of economic activity was a strong investors at a time of weak income growth ues in Washington with the House of high of 1.1000 on Friday following the FOMC employment. increase in incoming new business. New cannot be strengthening the resilience of our WRepresentatives passing the health- meeting and supported by the GDP figures Non-manufacturing index on the other orders rose for the twenty-ninth month run- economy. Nor can a high concentration of care reform bill aimed at repealing and replac- coming on expectations. With the second hand rose to 57.5, the second-highest since ning, with the rate of expansion staying close interest-only loans.” In such a case, “an other- ing the Affordable Care Act; the Senate round of the French Presidential Election on October 2015 from 55.2 in March. The results to March’s high. wise manageable downturn could be turned approved a $1.1 trillion spending bill that will Sunday, the centrist candidate Emmanuel are in line with projections for a rebound in into something more serious”. fund the federal government through Macron is leading the polls and expected to economic growth this quarter coming off the UK manufacturing Another negative surprise came on the September and prevent a shutdown. easily win the election. The currency closed weakest pace in three years. The UK construction PMI rose to 53.1 in back of the disappointing trade surplus On the monetary policy front, the May the week at 1.1000. The surge in non-factory orders also April against expectation of 52 and up from falling more than expected in March to AUD FOMC meeting offered little clues this week as The pound sterling continued to be sup- extended to customers beyond US borders 52.2 in March. According to the report, “April’s 3.1 billion, despite upward revisions across the Committee kept rates unchanged and was ported ignoring the risks emanating from export demand climbed to the highest level in survey reveals a positive start to the second the prior four months, with February now the constructive on economic developments the Brexit negotiations. Cable held its nearly a decade. On the employment front, US quarter of 2017, with a robust upturn in civil second highest on record at AUD 3.7 billion. despite the recent softening in GDP growth ground above 1.2900 and is expected to non-farm payroll recovered in April after the engineering activity helping to boost the The trade data implies a large net export drag and the drop in inflation. The committee did trade with high volatility should the political disappointing March figures. April non-farm construction industry. There were also more in the first quarter pressuring down econo- not give any signal on the next rate hike or fight with the EU persist. The sterling closed data came at 211K versus an expected 194K encouraging signs from the house building mists’ GDP forecast. changes in the Fed balance sheet policy. the week at 1.2984. setting the stage for a potential interest rate sector, as growth recovered to its strongest Finally, the RBA latest Statement showed a On growth, the statement acknowledged, The Japanese yen reached a six-week high hike in June. According to the report, job gains so far this year. However, the performance of small upgrade to GDP, with growth by June however dismissed the latest soft data noting at 113.04 against the dollar but softened back occurred in most sectors ranging from leisure the commercial building sector remained 2018 now forecast between 2.75 and 3.75 that consumer spending remain solid, and to close at the 112.72 level on Friday. and hospitality to finance and mining sectors. subdued in the context of the past four percent. The Bank said that it had greater that the Q1 slowdown was likely to be tempo- On the commodities side, oil prices contin- Furthermore, unemployment claims for the years.” Britain’s factories enjoyed their fastest confidence that inflation would pick up, but rary. Sentiments were more upbeat on busi- that’s in the context of an inflation forecast ness investment. Neither the growth slow- that doesn’t return to the Bank’s target range down nor the decline in core inflation in until June 2019. The cash rate is likely to be March changed the Committee’s expectations stuck at 1.5 percent for longer than the mar- that growth will continue at a moderate pace, ket has priced. the labor market will strengthen somewhat further, and inflation will stabilize around 2% China property sales over the medium term. According to data from the Chinese real On the data, the FOMC acknowledged that estate services, property sales volumes in “the labor market has continued to strengthen China’s top 50 cities declined by 19 percent even as growth in economic activity slowed. on a yearly basis and 10 percent on a month- Job gains remain solid, on average, in recent ly basis. This reflects the adverse impact of months, and the unemployment rate declined. the recent round of tightening measures that Household spending rose only modestly, but have been rolled out since mid-March. The the fundamentals underpinning the contin- government has been trying to curb property ued growth of consumption remained solid”. prices in China this year. Inflation measured on a 12-month basis Bank of Japan Governor Kuroda said that recently has been running close to the “the mindset is still quite cautious about Committee’s 2 percent. inflation expectations, but I’m quite sure Market probability of a hike stood at 90 that with continuous accommodative mone- percent for June in comparison to 67 percent tary policy, supported by fiscal policy, we’d prior to the FOMC meeting. ued their slide by the end of the week, falling previous week came at 238K against an growth for three years last month from 54.2 be able to eventually raise wages and prices On the global economic front, the 2.9 percent on fears of rising output. Crude oil expected 246K. Finally the unemployment in March to 57.3 in April on the back of strong significantly”. Eurozone growth may accelerate more and closed around the $46, back to levels last seen rate came at 4.4 percent as a result of the per- demand at home and abroad, according to a The projected growth rate of 1.5 percent is the ECB monetary policy guidance could before the OPEC deal, as the shale revival formance of both public and private sector. survey that will temper worries about a “not great” but it is well above the medium- change as the recovery picks up, ECB chief appears to be making the OPEC cuts ineffec- Brexit-driven economic slowdown this year. term potential growth rate which means that economist Peter Praet said, reinforcing expec- tive. After dipping below $44 Friday, prices Eurozone economic growth The manufacturing sector, which makes up the output gap will shrink and become posi- tations for a more upbeat economic assess- closed the week slightly higher than the low, Euro area economic growth accelerated to about a tenth of the UK economy, enjoyed tive while the labor market continues to ment from the bank. Economic growth is meanwhile, shale drillers are pressing ahead a six year high at the start of the second the strongest pick-up in new work since the tighten. In that event, wages and prices broadening and there is potential for a posi- with their longest expansion since 2011. quarter. This was signaled by the final start of 2014 and smashed expectations in would eventually rise to achieve the 2 per- tive surprise in the second quarter noting that Eurozone PMI Composite Output Index rising April. Firms also took on new workers at a cent inflation target around the fiscal year inflation was also set to rise gradually to near Mixed US Data to 56.8 in April, up from 56.4 in March and faster pace and ramped up production. 2018. He acknowledges that “headline infla- the ECB’s target by 2019. US manufacturing missed expectations in the earlier flash estimate of 56.7. Activity has tion has been quite slow to adjust upward” in On the foreign exchange side, the dollar April as employers reported less hiring and a expanded for 46 months in a row. Output RBA concerned about household debt part because of weakness in oil prices. index reached a 7-month low at 98.543 on slower pace of incoming orders, according to growth accelerated at manufacturers and Reserve Bank of Australia Governor Lowe Friday after an upbeat UK and Eurozone fig- the ISM report. Indeed the purchasing man- service providers, with rates of increase hit- said that “the recent increase in household Kuwait ures helped building pressure on the dollar. ager’s index slipped to 54.8 from 57.2. ting 72-month records in both cases. The debt relative to our incomes has made the Kuwaiti dinar at 0.30415 The Euro continued to shun the French Economists had forecasted a reading of 56.5, slightly sharper expansion was again regis- economy less resilient to future shocks. The USDKWD opened at 0.30415 yester- election risk and opened the week at 1.0905 with the biggest decrease was recorded in tered in manufacturing. Underpinning Double-digit growth in debt owed by day morning.

European economic Outcry as plans to raze recovery picking up

By Hayder Tawfik thousands of communist-era flats

uropean economic recovery is gathering pace although with small steps. But recently it has MOSCOW: Valeriya Yevseyeva and her hus- Eimproved a lot. German unemployment keeps band Alexei bought a flat last year in a five- falling much faster than its European partners. Falling storey brick building near a Moscow park unemployment and job creation is where they love to cycle. Now they face the crucial to faster European econom- possibility that authorities will demolish their ic recovery. Most of this economic 1950s-era building and rehouse them in a recovery is due to policy-driven tower block, in an urban development plan measures by the European central not seen since Soviet times to demolish more bank and the weakness of the Euro than 4,500 apartment blocks and relocate against the US dollar. How long hundreds of thousands of Muscovites. “This these supporting factors remain is is a brick building, everyone knows they can open to question. Most likely in the stand for up to 150 years, so this is a shock,” coming year, the European Union said 31-year-old Yevseyeva, who works for a governments and central banks needed to draw up an medical device company. exit strategy from fiscal and monetary stimulus measures, Backed by President , to ensure they were withdrawn at the right time and in a Moscow Mayor Sergei Sobyanin wants to way, that does not do economic damage. knock down low-rise housing, focusing on The economic recovery has made some investors a lit- the five-storey buildings thrown up under tle over enthusiastic for the future prospect. I think it is a Soviet leader Nikita Khrushchev in the 1950s bit early to be carried away but the signs are there to and 1960s as the USSR rushed to build hous- cheer up. In some parts of the European Union such as ing for everyone. Germany, Italy and France, sentiment among business Supporters argue the vast 3.5-trillion ruble executives, consumers and investors has increased since ($62.1-billion, 57-billion euro) project is vital, the start of the year with some expecting a much stronger replacing the smaller, aged buildings with economic recovery throughout the coming couple of high-rise housing in ’s fast-developing years. The European Central bank does not share this posi- capital of 12 million which faces a housing tive sentiment. As usual Mario Draghi, the European crunch and rising rents. Central Bank’ president is being cautious. He is warning But the program-due to start in that risks remain to the downside and some economists September-has prompted protests from resi- maintain that the positive confidence might be at risk for dents fearful of losing their homes and who a small correction. Nothing major to worry about. say it rides roughshod over their property The European Union’s overall economy grew by 0.5 rights. And the level of outcry has even forced percent in the first quarter of 2017. This is much better Putin to react in a bid to reassure residents. than previous quarters and it seems that the growth is “The aim is to improve housing conditions for wide spread and is underpinned by solid exports and people who live in buildings that are falling MOSCOW: A picture taken on April 21, 2017 shows an excavator demolishing a five-storey apartment block in down,” the Kremlin strongman told ministers. consumers spending. The good news is that the positive Moscow. —AFP Photos confidence build up has not been shaken by political “It goes without saying that this should uncertainty in France or the UK added to that, the recov- be done in such a way and with such means of parliament, but many details are vague ery suggests that investors’ mood isn’t being shaken by and methods so as to not breach the rights and remain left to be worked out. political doubt related to the French elections and Brexit. of citizens.” Under the program people are promised European Union’s industrial manufacturing and a flat of “equivalent” size-not the same value- services companies have been experiencing the ‘Deportation of Muscovites’ in the same, albeit likely spread-out, district. strongest activity in six years. At the same time busi- Authorities initially wanted to demolish It would be impossible to legally contest ness executives and consumers feel most positive on 8,000 buildings, home to 1.6 million people, eviction-only the new flat’s size-and resi- the economy in almost 10 years. For the time being the but reduced the scale this month after con- dents have just 60 days to move out. economic recovery seems real at least in the short term ducting opinion polls. The first five-storey but over the coming few years, factors affecting this buildings-nicknamed khrushchevki after the ‘Nightmare’ recovery could change. This is a great investment Soviet leader-rehoused people living in com- Some people are happy to swap their opportunity that could last for at least till the end of munal flats-where entire families were pokey flats for new ones. “The building’s this year. It seems that global investors are happy to bet squeezed into one room-and were celebrat- worn-out: there’s not much pleasant about on European equities if they believe the economic ed as a symbol of social progress in films and it,” said one resident, who gave only her first recovery is for real. Dmitry Shostakovich’s 1958 operetta, name Yekaterina, adding her kitchen meas- Investors should know that there are always some “Moscow, Cheryomushki”. ures just five square metres (54 square feet). small hiccups once economic recovery takes hold. But Now, some seven decades later, those But many are deeply upset and have not equity investors should try to take advantage of any backing the project to pull them down are been afraid to express their anger. small corrections that might be caused by political billing it as an equally important transforma- Yevseyeva, who lives in a spacious 1957 upsets. The good news for equity investors is that the tion “It’s a historic step. There probably hasn’t building with high ceilings and thick walls, European economic growth forecast is nearly double of been such large-scale change to Moscow was horrified to realise her home could be at it achieved last year. This for sure will underpin stock val- since the 1950s,” said ruling risk if demolition plans for her building go uations and increases the prevailing positive sentiment. party MP Pyotr Tolstoy. ahead. “We were sure it didn’t face any A general view taken on April 21, 2017 shows a partially demolished five- The only spoiler is the unforeseen action of the Often situated in leafy communal set- threat, but according to this bill, it’s possible storey apartment block in Moscow. European Central Bank. There is this expectation that tings, the apartment blocks were built with- to take away any property,” she said, calling the European Central bank will start working out an exit out lifts and kitchens are small. The worst are the plan “a nightmare”. developers standing to profit from taking large park, officials didn’t help their cause by from unprecedented asset purchases and negative made of pre-cast concrete panels but many She has joined a Facebook protest group over prime real estate, many people say they failing to specify where the new flats would interest rates next month. Officials at the bank must be are brick. with 16,000 members and held a placard are worried they will be forced out. be, leading to tempers fraying. very careful that they do not make wrong policies just “They’re outdated. It’s impossible to against “deportation of Muscovites” at a rally- “We risk handing Moscow over to busi- Sergei Mitrokhin, a leading member of as the economic recovery picking up. They should repair, renovate or reconstruct them people the first she ever attended. In theory, a ness and city contractors,” warned lawmaker the liberal opposition Yabloko party, warned acknowledge the improvement the economy has made really do live in awful conditions,” said the majority of residents in each building will Mikhail Degtyarev, of the nationalist Liberal inhabitants: “They’re asking if you want to be and stress the risks it faces. - @Rasameel lawmaker. Tolstoy co-authored the bill on the need to approve demolition and only unsafe Democrat Party, in parliament. At a packed moved or not-but they’re not telling you demolitions that got the preliminary backing buildings will be touched, but with property public meeting in Izmailovo, a district by a where they’re moving you to.” —AFP