News Archive

Reuters Poll: Expected timing for Bank of Canada rate hike pushed back

(Reuters) – The Bank of Canada will likely defer an interest rate hike until late next year despite high household debt and above-target inflation, a Reuters poll showed on Wednesday.

The central bank will stay put at next week’s policy decision, according to the poll of 41 economists, leaving its key interest rate on hold until the fourth quarter of 2015, slightly later than forecast in a Reuters poll in October.

Recent comments from BOC Governor Stephen Poloz and his officials on how close to capacity the Canadian economy was operating triggered some of the forecast changes.

“They’ve been arguing that the amount of excess slack in the economy has been understated thus far, and if that’s what they believe, then that would argue for a later tightening,” said Andrew Kelvin, senior fixed-income strategist at TD Securities.

Kelvin also pointed to disappointing growth in the third quarter and to low oil prices.

The latest poll results come alongside wavering expectations that the U.S. Federal Reserve will raise its key interest rate from a record low by the middle of next year and perhaps instead wait until later in the year.

Once the Bank of Canada does start hiking rates, the poll forecast follow-up quarter-point hikes in each of the first two quarters of 2016.

Canada’s headline and core inflation rates overshot the Bank’s 2 percent target in October, at 2.4 percent and 2.3 percent respectively, while unemployment rate dropped to a six-year low of 6.5 percent.

Poloz is expected to continue to sound dovish at next week’s meeting and shrug off inflationary pressures as temporary, the poll found.

TD analysts said Poloz will need to address the jump in inflation, but is likely to place more emphasis on labor market slack.

The central bank dropped its guidance on the direction of interest rates at the last policy meeting in a bid to curb parsing of its policy statements and market volatility.

But that has not resulted in clearer policy, according to the 25 forecasters who answered that question in the Reuters poll. A slim majority said it has led to less clarity instead; none thought there clarity had been improved.

“The result is an increased sense of mixed messages and reversals. Never providing explicit guidance does not necessarily result in less clarity, but offering it and then abandoning generally does,” said Mark Hopkins, senior economist at Moody’s Analytics.

Low interest rates – on hold since 2010 – have helped push Canada’s household debt-to-income ratio to 163.6 percent in the second quarter, close to a record high of 164.1 percent hit last year.

Of 27 analysts who answered a question on this, 21 said that level is too high.

“High household debt will become a burden on the economy in the future when longer-term mortgage rates rise, especially if inflation and growth in household incomes remain low,” said David Madani, Canada economist at Capital Economics.

A separate Reuters poll on the Canadian housing market found that household debt levels are seen as high enough to pose a risk to housing demand and that there is a chance of a major property market correction. [CA/HOMES]

(For other Reuters Poll stories on the outlook for major world central bank policy decisions: [ID:nL3N0TG3BO])

(Additional reporting by Randall Palmer; Polling by Anu Bararia and Swati Chaturvedi; Editing by Jeffrey Hodgson, Ross Finley and Chizu Nomiyama)

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WTO postpones trade deal by a day after last-minute objection

GENEVA (Reuters) – The World Trade Organization postponed adoption of the first global trade reform in its 19-year history on Wednesday, delaying by a day after a last-minute objection from Argentina, diplomats said.

“It’s not a big drama,” WTO chief spokesman Keith Rockwell told reporters.

Diplomats said they expected the meeting to go ahead on Thursday and the reform package to be adopted. But, after repeated pitfalls, nobody could rule out the deal tripping up.

The WTO has lurched from one disappointment to another over the past decade as it tries to find a balanced trade deal that all its members, now numbering 160, could support.

It cut back its ambitions to ensure unanimous backing for a small package of trade reforms at a meeting in Bali last December, but a new government in India refused to let the reforms go ahead.

That left the Bali deal in limbo, including its centrepiece, a global streamlining of customs processes that supporters say will add $1 trillion and 21 million jobs to the world economy.

Four months of stalemate ensued until a U.S. negotiating breakthrough assuaged India’s concerns about the amount of attention being paid to its demand to be allowed to break the usual WTO rules by stockpiling crops at above-market prices.

Argentina has now demanded that the WTO meeting to agree on the Indian compromise should give equally formal backing to other parts of the Bali package of reforms, forcing diplomats to contact their ministries for approval for such a step.

“This gives a little bit more comfort to some delegations,” Rockwell said. “It’s just taking a little bit more time, it’s not anything to worry about too much.

“I think there’s guarded optimism. From what we can tell people seem pretty determined to finish this.”

(Reporting by Tom Miles; Editing by Janet Lawrence)

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U.S. core capital goods orders fall for second straight month in October

WASHINGTON Nov 26 (Reuters) – New orders for U.S.-made capital goods unexpectedly fell for a second straight month in October, a sign that the economy lost some momentum early in the fourth quarter.

The Commerce Department said on Wednesday non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, declined 1.3 percent last month. That followed a 1.3 percent fall in September.

The drop in the so-called core capital goods orders suggested that a brisk pace of spending on equipment set in the third quarter ebbed early in the fourth quarter.

A sturdy pace of business spending on equipment helped the economy grow at a 3.9 percent annual pace in the third quarter.

Economists polled by Reuters had expected core capital goods orders to increase 1.0 percent last month.

Shipments of these goods, which are used to calculate equipment spending in the government’s gross domestic product measurement, fell 0.4 percent in October after rising 0.4 percent in September.

But overall orders for durable goods – items ranging from toasters to aircraft that are meant to last three years or more

increased 0.4 percent, snapping two straight months of declines.

Durable goods orders have been volatile in recent months because of big swings in aircraft orders. Orders for transportation equipment increased 3.4 percent in October after declining 3.3 percent in September.

The gain came despite Boeing BA.N receiving only 46 aircraft orders, down from 122 in September, according to information posted on the planemaker’ s website.

Automobile orders rose 0.3 percent last month, halting two straight months of declines.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

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U.S. consumer spending rebounds, income rises modestly

WASHINGTON Nov 26 (Reuters) – U.S. consumer spending rebounded in October, suggesting some resilience in the economy at the start of the fourth quarter. The Commerce Department said on Wednesday consumer spending increased 0.2 percent last month after being flat in September.

Consumer spending, which makes up more than two-thirds of U.S. economic activity, was previously reported to have declined 0.2 percent in September.

Economists polled by Reuters had forecast consumer spending rising 0.3 percent last month. When adjusted for inflation, consumer spending also rose 0.2 percent after being flat in September.

Extremely low gasoline prices as well as a strengthening labor market are supporting consumer spending, which should help to shield the economy from slowing growth in China and the euro zone, as well as a recession in Japan.

The government reported on Tuesday that the economy grew at a 3.9 percent annual pace in the third quarter. Income rose a modest 0.2 percent in October after a similar gain in the prior month. With income growth matching consumer spending, the saving rate was unchanged at 5.0 percent.

The moderate pace of consumer spending, combined with weak gasoline prices, kept inflation under wraps. A price index for consumer spending edged up 0.1 percent after a similar gain in September.

In the 12 months through October, the personal consumption expenditures (PCE) price index rose 1.4 percent after advancing by the same margin in September.

Excluding food and energy, prices rose 0.2 percent after gaining 0.1 percent in September. The so-called core PCE price index increased 1.6 percent in the 12 months through October, the largest gain since December 2012.

Both price measures continue to run below the U.S. central bank’s 2 percent inflation target.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

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China to push growth of outsourcing industry

BEIJING (Reuters) – China will develop international outsourcing of high-value-added services to create new advantages in foreign trade, its cabinet said on Wednesday, according to the official government website.

The State Council will reduce corporate income taxes to 15 percent in a number of cities to encourage development of the high-tech, high value-added services outsourcing industry.

The goal is to move Chinese industry away from relying on low cost manufacturing to be globally competitive.

The effort will focus on developing software and IT services, research and development, finance, and government services, the State Council said.

China will trial a tax-free or zero value-added tax policy for international outsourcing services and provide various kinds of financial support and public financing. It will also cut red tape for dealing with foreign exchange.

Government departments also will pay for more services.

(Reporting by Paul Carsten; editing by Jane Baird)

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Thomas Cook says CEO Harriet Green to step down

LONDON (Reuters) – British holiday company Thomas Cook (TCG.L) said its chief executive Harriet Green was stepping down, two years after leading a turnaround of the group.

Warning that its pace of growth would moderate next year to reflect a tougher trading environment, Thomas Cook said that Green would be replaced by chief operating officer Peter Fankhauser with immediate effect.

The CEO change came as the company reported a 44 percent jump in earnings before interest and tax (EBIT) to 323 million pounds ($507.43 million) for the year ended September, broadly in line with a Thomson Reuters consensus forecast of 320 million pounds.

(Reporting by Sarah Young; editing by James Davey)

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BOJ’s Shirai defends latest easing, rules out incremental action

HIROSHIMA, Japan (Reuters) – A Bank of Japan board member who voted for last month’s huge monetary expansion defended the move on Wednesday, saying that failing to act would have cast doubt on the bank’s determination to hit its price goal and undermined its credibility.

Having deployed “the maximum scale of stimulus possible,” the BOJ can now wait to see how much the move will support the economy and prices, Sayuri Shirai said, signaling that no further monetary easing was necessary in the near term.

“We don’t ease policy each time (economic and price) growth undershoots our expectations,” she told a news conference.

Shirai, one of two academics who held casting votes in last month’s close-call decision, said she initially thought about holding off on further boosting the stimulus.

But she eventually decided to support Governor Haruhiko Kuroda’s expanded stimulus plan to head off the risk of slowing inflation and demonstrate the BOJ’s conviction to achieve its 2 percent inflation target.

“By not acting, the BOJ might risk its credibility. Such a circumstance would not only render my outlook unfeasible but would also undermine the feasibility of the 2 percent target,” she told business leaders in Hiroshima, western Japan.

Shirai urged companies to help Japan beat deflation by raising wages and capital expenditure. The BOJ led by example on Tuesday saying it was granting its board a salary increase of 1.3 percent, the first pay raise in nine years.

The BOJ stunned markets by expanding a massive monetary stimulus drive last month as the economy slipped into recession.

The easing was decided by a 5-4 vote, with dissenters arguing that the cost of easing policy outweighed the benefits, and doubting whether printing more money would help build up inflation expectations.

Shirai, a former International Monetary Fund economist, said the BOJ should allow itself more than two years to meet its 2 percent inflation target if it wants to achieve that goal “without putting excessive burdens on households and companies.”

Given weak demand, inflation may slip below 1 percent in coming months and the economy may suffer negative growth in the current fiscal year ending March 2015, she said.

“Last month’s easing pre-empted such risks,” she said.

Shirai was among the five board members who voted for expanding QQE last month, though she made an unsuccessful proposal to water down the BOJ’s commitment to hit its price target in two years.

(Reporting by Leika Kihara; Editing by Chris Gallagher and Eric Meijer)

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Asia shares rise on U.S. optimism, oil under pressure before OPEC

TOKYO (Reuters) – Asian stocks edged up on Wednesday after upbeat U.S. economic growth data calmed investor anxiety over a deteriorating global outlook, while the Australian dollar languished near four-year lows against the dollar.

Oil prices were also under pressure as major oil producing nations failed to agree on curbs to output ahead of an OPEC meeting on Thursday.

The U.S. government upgraded its reading on third quarter gross domestic product to 3.9 percent on Tuesday from 3.5 percent reported last month. Economists polled by Reuters had expected growth would be cut to 3.3 percent.

“The gap between actual and estimated third quarter GDP was a big one,” Jasper Lawler, analyst at CMC Markets, said in a note, adding that what was of increasing importance was the gap between the economy of the U.S. and the rest of the world especially Europe and Japan.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS gained 0.4 percent. Mainland Chinese shares hit fresh three-year highs, helped by last Friday’s rate cuts from the People’s Bank of China while Tokyo’s Nikkei .N225 retreated 0.1 percent, weighed by the yen’s bounce.

European shares are expected to gain, with Germany’s DAX .GDAX and France’s CAC40 .FCHI seen rising up to 0.3 percent.

The 10-year U.S. Treasuries yield dropped to a one-month low of 2.252 percent US10YT=RR, as strong auction results, month-end buying and an unexpected drop in U.S. consumer confidence offset the encouraging GDP news.

That also helped the dollar put some distance from a seven-year high against the yen as investors took profits from its rally ahead of the U.S. Thanksgiving Day holiday on Thursday.

The greenback was down 0.2 percent at 117.72 yen JPY=, pulling further away from a seven-year high of 118.98 reached the previous week. The euro was little changed at $1.2477 EUR=.

“People are just squaring up ahead of the holiday,” said Bart Wakabayashi, head of forex at State Street in Tokyo.

“Overnight, we got some mixed U.S. data. It wasn’t shiny, but relatively speaking, the U.S. continues to be the leader,” he said.

The Australian dollar hovered near a four-year low of $0.8514 AUD=D4. The Aussie has been under pressure amid the recent tumble in the price of iron ore, Australia’s key export commodity.

“The AUD sits squarely at the bottom of the G10 pack in the past 24 hours and heading into the NY close, with a fresh slide in iron ore prices, now to below $70 for the first time since June 2009, adding pressure,” said Ray Attrill, global co-head of FX strategy at National Australia Bank.

Crude oil stayed under pressure after a meeting of Saudi Arabia and three other nations ahead of Thursday’s closely-watched OPEC summit ended with no deal to curb crude output. [O/R]

U.S. crude CLc1 was down 24 cents at $73.85 a barrel, near a four-year low of $73.25 hit a little more than a week ago.

(Additional reporting by Ian Chua in Sydney, Hideyuki Sano and Lisa Twaronite in Tokyo; Editing by Shri Navaratnam and Jacqueline Wong)

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Discover Financial sues Visa over anti-competitive card practices

(Reuters) – Discover Financial Services Inc sued Visa Inc on Tuesday, alleging the world’s largest cards company has been using anti-competitive practices in its debit card business, and sought compensation for lost profit, court documents showed.

Discover, through its Pulse Network LLC unit, alleges that “in order to maintain its monopoly, Visa has undertaken a series of illegal actions that undermine competition – harming rival debit networks, merchants, acquirers, card issuers, and consumers.”

Representatives at Visa could not immediately be reached for comment outside regular business hours.

Pulse requires its debit cardholders to authorize transactions with a personal identification number (PIN). Most Visa transactions use customer signature.

The lawsuit alleges that “Visa has a long history of making sure that PIN debit does not predominate, including undertaking illegal behavior to fend off competitive threats to its debit network services monopoly.”

In the petition, Discover said that Visa is offering economic incentives to merchants to choose the Visa network for transactions.

Discover is challenging a Visa rule that requires financial issuers of Visa signature debit cards to also include Visa’s PIN services instead of allowing other PIN networks like Pulse to compete for that business.

The case is Pulse Network LLC v. Visa Inc in the U.S. District Court of Southern District of Texas, Houston Division. Case: 4:14-cv-03391.

(Reporting by Supriya Kurane in Bangalore; Editing by Gopakumar Warrier)

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