News Archive


Russian central bank makes surprise interest rate cut


MOSCOW (Reuters) – Russia’s central bank unexpectedly cut its main interest rate on Friday as fears of recession mount in the country following the fall in global oil prices and Western sanctions over the Ukraine crisis.

The bank reduced its one-week minimum auction repo rate by two points to 15 percent, a little over a month after pushing it up by 6.5 points to 17 percent after a run on the rouble.

The bank had been widely expected not to change the rate. Following the decision, the rouble extended losses to trade as much as 4 percent down on the day against the dollar, though it later clawed back some of the losses.

The move implies a shift in the Bank of Russia’s priorities away from clamping down on rising inflation and supporting the rouble, towards trying to support economic activity, which the bank expects to fall sharply in the coming months.

The decision will also fuel speculation that recent changes in the bank’s senior management have shifted the bank towards more dovish monetary policy, possibly under pressure from the Kremlin, banks and business lobbies.

“Today’s decision to lower key interest rate by 2 percentage points is intended to balance the goal of curbing inflation and restore economic growth,” the bank’s governor, Elvira Nabiullina, said in an emailed statement after the announcement.

She said the rate remained high enough to allow the bank to reach its inflation target in the medium term.

President Vladimir Putin, who won popularity by providing Russians with more financial stability after the chaos of the 1990s following the fall of the Soviet Union, did not comment and the Kremlin denies influencing central bank decisions.

But Finance Minister Anton Siluanov said he backed the rate cut, and that the central bank had good reason to say the situation on the currency market was under control.

“The decision appears to be politically driven, since it is a cut that shows the central bank is worried about the risks to the banking sector. It looks like the central bank’s hand has been forced,” said Nicholas Spiro, managing director of Spiro Sovereign Strategy in London.

Earlier this month the bank’s head of monetary policy, Ksenia Yudayeva, an anti-inflation hawk, was replaced by Dmitry Tulin, a central bank veteran seen as more acceptable to bankers, who have called for lower interest rates.

FEARS OF RECESSION

the shift in policy may also reflect the realisation that Russia’s economy is heading for a hard landing as low oil prices look set to persist and the conflict in Ukraine has worsened, defying hopes of an early end to Western sanctions.

Data released this week showed real wages slumping by 4.7 percent year-on-year in December and real disposable income slumping by 7.3 percent, boding ill for economic growth in the months ahead.

The bank said it expected gross domestic product to fall by 3.2 percent in annual terms during the first half of 2015, following growth of 0.6 percent in 2014.

“This tells us they are looking beyond rising inflation in the coming months to try to stimulate economic growth,” said William Jackson, emerging markets economist at Capital Economics in London.

“But I don’t think the rate cut will have much impact (on growth). If you look at the stress on the banking sector, capital flight, the real income squeeze and collapse in oil prices, then a recession is inevitable.”

Analysts had nevertheless expected the bank to hold rates this month, as the bank had previously said it would cut rates when inflation is on a sustained downward trend. Inflation has instead been shooting up as a result of the slide in the rouble.

The bank said that it saw conditions for lower inflation in the medium term, but effectively acknowledged that inflation would stay in double digits throughout this year.

It said it expected inflation to fall below 10 percent in January 2016. Inflation was 13.2 percent as of Jan. 26, the bank said, up from 11.4 percent in December.

“I see big risks in today’s decision,” said Rosbank economist Evgeny Koshelev.

“Now the geopolitical background is unclear and inflation pressure remains quite strong, as well as signals for the outflow of capital… This (rate cut) is probably a reason to sell the rouble more in the short term.”

However, Renaissance Capital economist Oleg Kouzmin said he welcomed the move: “It’s good that they are lowering now. This is a sensible step. This will help the economy and allow stability to be preserved.”

He added that high interest rates do not especially help the rouble as capital outflows are largely linked to debt repayments.

“Will the capital outflow be stronger? Yes, but there will be a weaker rouble and a stronger current account, which means it won’t be necessary to spend more forex reserves.”

(Additional reporting by Vladimir Soldatkin, Katya Golubkova and Elizabeth Piper; Editing by Timothy Heritage and Giles Elgood)

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OPEC oil output rises in January as key members stand firm: survey


LONDON (Reuters) – OPEC’s oil supply has risen this month due to more Angolan exports and steady to higher output in Saudi Arabia and other Gulf producers, a Reuters survey showed, a sign key members are standing firm in refusing to prop up prices.

The Organization of the Petroleum Exporting Countries at a November meeting decided to focus on market share rather than cutting output, despite concerns from members such as Iran and Venezuela about falling oil revenue.

Supply from OPEC has averaged 30.37 million barrels per day (bpd) in January, up from a revised 30.24 million bpd in December, according to the survey based on shipping data and information from sources at oil companies, OPEC and consultants.

At the Nov. 27 meeting, OPEC retained its output target of 30 million bpd, sending oil prices to a four-year low close to $71 a barrel. Crude LCOc1 since fell to a near six-year low of $45.19 on Jan. 13 and was trading above $49 on Friday.

OPEC Secretary General Abdulla al-Badri, speaking in London on Monday, defended the no-cut strategy and said prices may have reached a floor, despite oversupply. Other OPEC delegates have since echoed this message.

“Prices are stabilizing,” said a delegate from a Gulf producer. “But the world economy is not very strong and stocks are too high.”

The largest boost this month has come from Angola, which pumped 1.80 million bpd and exported about 57 cargoes, up 160,000 bpd from December. Output would have been higher without some cargo delays, including of new crude Sangos.

OPEC’s other West African producer, Nigeria, also managed to boost exports, the survey showed, although the increase was restrained by outages of the Forcados and Nembe Creek pipelines.

Smaller increases have come from Kuwait, Qatar and the United Arab Emirates.

Output in top OPEC exporter Saudi Arabia has been flat to slightly higher, sources said. Saudi Aramco Chief Executive Khalid al-Falih said on Tuesday production was currently at 9.8 million bpd, although it was unclear if that was the daily rate or the January average.

“Steady is what I’m seeing,” said an industry source who tracks Saudi supply. “Exports are a bit lower and this is most likely offset by slightly higher refinery runs.”

The largest reduction this month has come from Iraq, where southern oil exports slipped from December’s record high and flows from northern Iraq also declined, according to loading data and an industry source.

Exports are likely to hit new records in coming months, technical problems and weather delays permitting. A loading program schedules record southern exports in February.

OPEC’s other country with a notable decline in output this month is Libya, where ports and oilfields have been shut due to fighting and supply fell further in January to 350,000 bpd.

For a table on OPEC oil output, click on

(Reporting by Alex Lawler, editing by David Evans)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/nSVCx2YMO6o/story01.htm

U.S. labor costs up solidly in fourth quarter


WASHINGTON (Reuters) – U.S. labor costs rose solidly in the fourth quarter, which could keep the Federal Reserve on track to raise interest rates this year.

The Employment Cost Index, the broadest measure of labor costs, increased 0.6 percent after an unrevised 0.7 percent gain in the third quarter, the Labor Department said on Friday.

Economists polled by Reuters had forecast the employment cost index rising 0.6 percent in the October-December period.

The ECI is widely viewed by policymakers and economists as one of the better measures of labor market slack.

Unlike the average hourly earnings (AHE) measure in the employment report, the ECI covers a broad range of workers and is weighted to eliminate composition effects, which economists say have distorted the AHE.

It is seen as a better predictor of core inflation. Wages and salaries, which account for 70 percent of employment costs, increased 0.5 percent in the fourth quarter.

They had gained 0.8 percent in the third quarter. The slowdown in the fourth quarter was flagged by a surprise decline in the average hourly earnings in December.

The Fed ramped up its assessment of the labor market on Wednesday, which economists interpreted as a signal for a mid-year rate hike.

In the 12 months through December, labor costs increased 2.2 percent. That is still below the 3 percent threshold that economists say is needed to bring inflation closer to the Fed’s 2 percent target. Labor costs had increased 2.2 percent in the 12 months through September.

Wages and salaries were up 2.1 percent in the 12 months through December after a similar gain in the 12 months through September.

Benefit costs increased 0.6 percent in the fourth quarter. That followed a similar gain in the July-September period.

They increased 2.6 percent in the 12 months through December, the largest jump since March 2012, after rising 2.4 percent in the 12 months through September.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/B3Ko6IL0nzE/story01.htm

U.S. growth cools in fourth quarter, but consumer spending robust


WASHINGTON (Reuters) – U.S. economic growth slowed sharply in the fourth quarter as weak business spending and a wider trade deficit offset the fastest pace of consumer spending since 2006.

Gross domestic product expanded at a 2.6 percent annual pace after the third quarter’s spectacular 5 percent rate, the Commerce Department said in its first fourth-quarter GDP snapshot on Friday.

The slowdown, which follows two back-to-back quarters of bullish growth, is likely to be short-lived given the enormous tailwind from lower gasoline prices. Most economists believe fundamentals in the United States are strong enough to cushion the blow on growth from weakening overseas economies.

“We look for strong domestic consumption to continue supporting growth momentum in the coming quarters even as investment suffers due to falling oil prices,” said Gennadiy Goldberg, an economist at TD Securities in New York.

Even with the moderation in the fourth quarter, growth remained above the 2.5 percent pace, which is considered to be the economy’s potential. Economists had expected GDP to expand at a 3 percent rate in the fourth quarter.

U.S. stock index futures extended losses and prices for U.S. Treasuries rose further after the data. The dollar weakened against a basket of currencies.

For all of 2014, the economy grew 2.4 percent compared to 2.2 percent in 2013. The report came two days after the Federal Reserve said the economy was growing at a “solid pace,” an upgraded assessment that keeps it on track to start raising interest rates this year.

The U.S. central bank has kept its short-term interest rate near zero since December 2008 and most economists expect a mid-year lift-off.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, advanced at a 4.3 percent pace in the fourth quarter – the fastest since the first quarter of 2006 and an acceleration from the third quarter’s 3.2 percent pace.

According to government data, gasoline prices have plunged 43 percent since June, leaving Americans with more money for discretionary spending. A strengthening labor market, despite sluggish wage growth, is also a boost.

MUTED INFLATION

A separate report from the Labor Department showed labor costs rising steadily in the fourth quarter, but remaining well below levels that would bring inflation closer to the Fed’s 2 percent target.

Inflation pressures were muted in the fourth quarter. The personal consumption expenditures (PCE) price index fell at a 0.5 percent rate, the weakest reading since the first quarter of 2009. Excluding food and energy, prices rose at a 1.1 percent pace, the slowest since the second quarter of 2013.

The strong pace of consumer spending in the fourth quarter, however, was overshadowed by a drop in capital expenditure. Business spending on equipment fell at a 1.9 percent rate. It was the largest contraction since the second quarter of 2009.

Business spending on equipment had advanced at an 11 percent rate in the third quarter. The fourth-quarter weakness could reflect cuts or delays to investment projects in the oil industry. But it could also be payback after two back-to-back quarters of robust gains.

A wider trade deficit, as slower global growth curbed exports and solid domestic demand sucked in imports, subtracted 1.02 percentage point from GDP growth in the fourth quarter. Trade had added 0.78 percentage point to third-quarter growth.

Restocking by businesses to meet growing demand contributed 0.82 percentage point to fourth-quarter GDP.

Other details of the report were mixed. Government spending was a drag as a defense-driven investment burst faded. Residential construction made a mild contribution to GDP growth.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/DqVlN-DTBM8/story01.htm

World investors’ cash holdings highest since 2012: Reuters poll


LONDON (Reuters) – World investors increased cash holdings in January as they braced for a choppy year with markets buffeted by conflicting forces such as diverging monetary policy and rising geopolitical risks, a Reuters poll shows.

A monthly survey of fund managers in the United States, Japan, Europe and Britain found the average allocation to cash in balanced portfolios jumped 1-1/2 percentage points to 7 percent — the highest since May 2012. Forty-four institutions took part in the poll.

Investors typically increase holdings of cash when they expect markets to fall, often at the expense of more volatile assets such as stocks.

The average allocation to equities remained unchanged at 48.2 percent, though bond holdings fell to 36.6 percent from 38.2 percent. Holdings of property were down to 1.9 percent from 2.6 percent while exposure to alternative assets, such as hedge funds and private equity, rose to 6.4 percent from 5.3 percent.

“The overriding feature for 2015 will be bouts of higher volatility and risk-off episodes that mean investors will need to be far more wary,” said Ashok Shah, investment director at British investment manager London Capital.

The polling period was dominated by the European Central Bank’s announcement last week that it would start buying bonds under a 1 trillion euro quantitative easing program from March with the aim of stimulating euro zone growth and inflation.

In contrast, monetary authorities in the United States are widely expected to start raising interest rates, bringing an end to an era of monetary stimulus launched in response to the 2008-9 financial crisis.

UNPREDICTABLE

Divergent monetary policies in major economies, geopolitical risk around Russia, a slowing Chinese economy and political uncertainty in Europe after Greeks elected an anti-austerity government, make markets unpredictable, investors said.

“Our portfolios have been long the dollar for some time,” said Andrew Milligan, head of Global Strategy at Standard Life Investments. “With the ECB’S announcement on QE we are debating the extent of euro weakness in 2015-16, which partly reflects the decision the Fed will need to take on interest rates in a few months.”

The poll was taken from January 16-29, during which time world stocks .MIWD00000PUS rose around 1.5 percent. The ECB’s QE announcement, which had been widely expected, was on Jan. 22.

The U.S. SP 500 index .SPX was little changed over the survey period, having retreated more than 3 percent from a record high set at the end of 2014.

Emerging market stocks .MSCIEF hit a six-week high and advanced more than 1.5 percent during the survey period, despite fallout from Russia’s economic and political situation and worries about slowing Chinese economic growth.

U.S. fund managers recommended increasing cash allocations to their highest in over seven years, to 10.1 percent from 5.1 percent last month, the highest since at least May 2007.

British fund managers also boosted the amount of money kept in safe-haven cash as well as alternative investments.

Hedge funds and other alternative assets can benefit from volatile markets, in part because they are able to profit from falling prices through mechanisms not available to conventional funds, such as short selling.

Meanwhile, European investment managers placed their bets firmly on stocks in January, anticipating an imminent lift to corporate profitability from the ECB’s stimulus measures.

Japanese fund mangers still want to put more than half their assets under management into bonds, despite falling yields, expecting a prolonged period of low interest rates around the world, the Reuters survey showed.

(Reporting by Swati Chaturvedi and Siddharth Iyer; Editing by Catherine Evans)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/oHf2EpcAMvs/story01.htm

U.S. funds raise cash allocations, cut stocks as risks rise: Reuters poll


(Reuters) – U.S. fund managers recommended increasing cash allocations to their highest in at least seven years in January as low global inflation and surprise easing by major central banks prompted defensive rearrangements to model portfolios.

Recommended cash allocations in a model global portfolio based on a panel of 11 fund management companies polled by Reuters over the past few weeks doubled to 10.1 percent from 5.1 percent last month, the highest since at least May 2007.

Recommended global equity holdings were cut to 50.4 percent, although U.S. holdings within the portfolio rose.

Last year’s dramatic drop in oil prices has extended into this year, pushing Brent crude oil to less than $50 a barrel and keeping alive disinflationary pressures around the globe.

While inflation in the euro zone has turned negative, price rises have slowed sharply in Britain too, and to a lesser extent in the United States, to below their respective central banks’ targets.

“It is not a bad move to raise cash. We have been raising cash in some of our portfolios just to take profits that we had. It continues to make sense we look for a better entry points (into stocks),” said Wayne Lin, fund manager at Legg Mason.

It has been a muted start to the year for U.S. stock markets: the SP 500 index .SPX has shed around 3 percent.

Within the global equity portfolio, fund managers raised their recommended allocations into U.S. stocks by almost 10 percentage points from last month to 70.8 percent, reflecting continued optimism about the world’s largest economy.

They cut recommended UK stock holdings by half to 4.4 percent from 8.9 percent, while suggested holdings in euro zone stocks were reduced slightly to 10 percent from 11.3 percent.

Suggested allocations into emerging European stocks, however, jumped to 1.8 percent of the portfolio from just 0.4 percent last month. These stocks are seen rising with the European Central Bank’s bond purchase program, which begins in March and will total over one trillion euros to start.

Central banks from Canada to Denmark to Singapore have also recently cut interest rates.

A separate Reuters poll last week showed economists still expect the Federal Reserve to hike rates in the second quarter of this year supported by a strengthening economy despite concerns of low inflation.

In addition to risks from disinflation, a slowdown in China this year could add to risks to the global portfolio. Beijing plans to cut the growth target of the world’s second largest economy to 7 percent in 2015, sources told Reuters on Wednesday.

Allocations into U.S. and Canadian fixed-income securities in the global bond portfolio have increased to 76.3 percent, the highest for at least three years, from 66.3 percent last month.

That has helped the dollar .DXY gain 5 percent against a basket of currencies since the start of the year and it is likely to strengthen further as the gap between the monetary policies of the Fed and other major central banks widens.

“Falling oil prices may have created some opportunities in bonds that have been unduly penalized by the recent selloff,” said Alan Gayle, fund manager at Ridgeworth Capital.

“The safety element in this more volatile investing climate also makes Treasuries appealing over the short term.”

Other changes in stock recommendations include slightly higher Japanese equity holdings, up to 5.7 from 5.1 percent.

(Additional reporting by Anu Bararia; polling by Swati Chaturvedi and Siddharth Iyer; Editing by Ross Finley and Catherine Evans)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/IUe5S6mJadg/story01.htm

Futures drop ahead of data; indexes to fall for month


NEW YORK (Reuters) – U.S. stock index futures fell on Friday ahead of data on economic growth, consumer inflation and confidence, with major indexes poised for a second month of declines.

* Amazon (AMZN.O) shares jumped 11 percent in premarket trading the day after posting earnings that beat Wall Street expectations on strong sales during the holiday season.

* Data due include a reading on fourth-quarter gross domestic product growth, consumer inflation and employment costs at 8:30 a.m. EST (1330 GMT). Shortly after the opening bell, data from the Chicago PMI and University of Michigan on consumer confidence will be released.

* Google Inc (GOOGL.O) shares rose 1.2 percent in premarket trading after revenue grew 15 percent in the fourth quarter but fell short of Wall Street’s target on declining online ad prices and unfavorable foreign exchange rates.

* Visa (V.N) rose 3.7 percent in premarket trading after it reported a better-than-expected quarterly profit and announced a 4-for-1 split of its class A common stock.

* Mattel (MAT.O) shares fell 1.1 percent after the toy maker reported its fifth straight fall in quarterly sales in North America, a nagging decline that likely cost Brian Stockton his job as chief executive this week.

Futures snapshot at 7:59 a.m.:

* SP 500 e-minis ESc1 were down 15.25 points, or 0.76 percent, with 144,701 contracts changing hands.

* Nasdaq 100 e-minis NQc1 were down 17 points, or 0.41 percent, in volume of 23,395 contracts.

* Dow e-minis 1YMc1 were down 145 points, or 0.83 percent, with 23,898 contracts changing hands.

(Reporting by Rodrigo Campos; Editing by Bernadette Baum)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/Wd8FrnzRe4g/story01.htm

Exclusive: Russia’s Rosneft will not resume drilling in Kara Sea in 2015


MOSCOW (Reuters) – Russian state-controlled oil company Rosneft (ROSN.MM) will not be able to resume drilling in the Kara Sea this year after Western sanctions halted its cooperation with ExxonMobil (XOM.N) in a major setback for Moscow’s energy ambitions, two company sources said.

The delay will be a blow to Rosneft, which was spearheading President Vladimir Putin’s goal to increase output and secure Russia’s energy dominance by exploring the Arctic, where Moscow is believed to have one of the world’s largest oil resources.

In September, Rosneft announced it had found oil in the Kara Sea after drilling with Exxon at the Universitetskaya-1 well, the most northerly in the world. Oil resources in the Kara Sea are estimated to be comparable to those of Saudi Arabia.

The company was due to restart drilling this year but Exxon was forced to stop cooperation after the West imposed sanctions on Russia over its actions in the Ukraine crisis.

“There will be no drilling in 2015. There is no platform and it is too late to get one. The project was initially created for Exxon’s platform,” a Rosneft source said.

The second source confirmed this.

Asked for comment, Rosneft said: “In 2015, Rosneft will ensure implementation of its license obligations related to geological exploration in the Kara Sea.”

Usually licenses give companies a certain period of time to complete work. Rosneft did not give the timeframe offered by the license.

The second Rosneft source said the company planned to resume drilling in 2016 but that commercial production would now be pushed back to beyond 2020.

“Usually, it takes 8-10 years from the first well to the first oil on the offshore but here you have such a difficult situation,” the source said.

Russia is the world’s top oil producing nation and output hit a post-Soviet high of an average 10.58 million barrels per day (bpd) last year.

But the country needs to explore new areas such as the Arctic or for shale oil because its resources in Western Siberia, Russia’s main oil producing region, are depleting.

PLATFORM SEARCH

Rosneft was using the West Alpha platform, owned by Seadrill subsidiary North Atlantic Drilling (NADL.N), in the Kara Sea.

The rig returned to Norway in mid-October after completing the well in the Kara Sea in late September. The rig is on contract with Exxon until July 2016.

Due to severe weather conditions, drilling in the Kara Sea can only be conducted during a couple of months a year. The Universitetskaya-1 well is Russia’s second offshore Arctic project after Prirazlomnoye operated by Gazprom Neft (SIBN.MM).

The first source said roughly a year and a half was needed to adjust the Kara Sea project for a new platform so in order to start drilling in July-August next year, Rosneft would need to start looking for a platform now.

“We expect to decide on the platform by April-May and will launch the tender soon. The choice is obvious — there are a lot of platforms in the East, in China or South Korea, maybe from North Atlantic Drilling, maybe from Lukoil (LKOH.MM) in the Baltics,” he said.

“There are a lot of platforms and this is not a problem even if it is not an ice-proof — it can always be upgraded … After oil prices have fallen it is two-times cheaper to lease platforms and supply vessels.”

Western sanctions prevent Western firms from helping certain Russian companies, including Rosneft, to explore in the Arctic, in deep water or for shale oil, among other restrictions.

Valery Nesterov, an analyst with Sberbank CIB, said the main challenge would not be to find a proper platform but to address the safety of operations in an area where Russia lacks expertise.

(Reporting by Denis Pinchuk and Katya Golubkova, additional reporting by Balazs Koranyi in Oslo; editing by Elizabeth Piper and Giles Elgood)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/KgpAmjl80PM/story01.htm

Printer maker Xerox’s profit beats Street on lower costs


(Reuters) – Xerox Corp (XRX.N), best known for its printers and copiers, reported a slightly better-than-expected quarterly profit as expenses declined 4 percent.

Restructuring and better productivity led to higher margins, Xerox said on Friday.

The company has been focusing on services to offset a drop in revenue as companies cut down on printing and as personal computing moves to tablets and smartphones.

Xerox said last month it was selling its information technology outsourcing arm to French IT services firm Atos SE (ATOS.PA) for $1.05 billion to focus on building up faster-growing units, business process outsourcing (BPO) and document outsourcing.

The company bought Affiliated Computer Services Inc in 2009 to enter the services business, including BPO, IT services, cloud computing and data management.

Operating margin expanded to 10.4 percent in the in the fourth quarter ended Dec. 31 from 9.4 percent a year earlier.

Revenue from Xerox’s services business increased 1.1 percent to $2.72 billion, while revenue from its printing business declined 8.1 percent.

Total revenue fell to $5.03 billion from $5.21 billion.

Net income attributable to Xerox fell to $156 million, or 13 cents per share, from $306 million, or 24 cents per share.

Excluding items, the company earned 31 cents per share.

Analysts on average had expected a profit of 29 cents on revenue of 5.07 billion, according to Thomson Reuters I/B/E/S.

Up to Thursday’s close, Xerox shares had fallen about 28 percent in the last one year.

(Reporting By Arathy S Nair in Bengaluru; Editing by Joyjeet Das)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/dw5uEl5a9KY/story01.htm