News Archive

Strong case for June rates liftoff, says Fed’s Lacker

RICHMOND, Va. (Reuters) – The Federal Reserve will have a “strong” case to hike U.S. interest rates in June, a hawkish Fed official said on Tuesday, dismissing recently weak economic data as transitory and perhaps due to unseasonable weather.

Richmond Fed President Jeffrey Lacker, who has long called for a prompt tightening of monetary policy, said consumer spending, the labor market and other economic conditions have improved significantly over the last year.

A voting member this year on Fed policy who made many familiar arguments, Lacker predicted more improvement in the labor market and wages in the months ahead, and 2.0 to 2.5 percent GDP growth for the year. He said moves in the dollar and in oil prices were likely transitory, so U.S. inflation should rise to a 2-percent target.

“Given what we know today, a strong case can be made that the federal funds rate should be higher than it is now,” Lacker said in prepared remarks to the Greater Richmond Chamber of Commerce. “I expect that, unless incoming economic reports diverge substantially from projections, the case for raising rates will remain strong at the June meeting.”

Economists expect the Fed to hike rates from near zero by June at the earliest, though September is seen as more likely due to weak inflation and an economic slowdown in the winter.

Some Fed officials have attempted to de-emphasize the timing of the first rate rise and stress, as Lacker did on Tuesday, that policy will remain accommodative for years.

“Raising the funds rate target a notch or two is less like taking away the punch bowl and more like just slowing down the refills,” he said. “We will still be spiking the punch, just not quite as rapidly as we have been.”

Lacker also emphasized there is no “fixed, preset timetable” for getting rates up to a normal level of about 3.5-4.0 percent.

(Reporting by Jason Lange in Richmond; Writing by Jonathan Spicer; Editing by Chizu Nomiyama)

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Vatican near deal on financial information sharing -source

VATICAN CITY (Reuters) – The Vatican and Italy are close to reaching an agreement to share financial and tax information in the aim of cracking down on money-laundering and other illicit behavior, a senior Vatican official said on Tuesday.

The deal, which the official said could be announced as early as this week, is part of Pope Francis’ efforts to clean up the finances of the Vatican. The official asked not to be named, because he is not authorised to discuss the accord.

The Vatican has long been criticized by international financial organizations for providing a tax haven for well-connected Italians.

In particular, the Vatican bank for decades allowed many Italian citizens to hold bank accounts. That practice, which was in violation of the bank’s mission to manage money for the Church, helped individuals evade taxes and launder cash, Italian law enforcement officials say.

Since Pope Francis’ election two years ago, the bank, officially known as the Institute for Works of Religion (IOR), has been undergoing change. As of July, it had blocked the accounts of 2,000 clients and ended some 3,000 “customer relationships”.

The process is nearly finished and the bank’s 2014 annual report will be issued in a few weeks, a person close to the bank said.

The accord on information sharing between the two neighbours was flagged earlier this month by Italian Prime Minister Matteo Renzi, who said discussions were underway with the Vatican, following Rome’s recent agreements with Switzerland, Monaco and Liechtenstein.

One complicating factor concerned how the agreement should treat money held in the Vatican by religious institutions and orders of priests and nuns based in Italy.

Some religious institutions run guest houses but some of the profits go to help missions in the developing world or for charity purposes — money the institutions feel should not be taxed by Italy.

The talks also suffered a hiccup over the issue of whether any new measures agreed by the deal would be retroactive, according to one Italian official familiar with the negotiations.

The Vatican official declined to give details, but said the talks had since got back on track.

(Additional reporting by Elvira Pollina, Francesca Landini, and Giuseppe Fonte; editing by Alessandra Galloni and Crispian Balmer)

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Oil drops to $55 as Iran nuclear talks intensify

SINGAPORE (Reuters) – Oil futures extended losses on Tuesday, as Iran and six world powers ramped up the pace of negotiations to reach a preliminary deal that could ease sanctions and allow more Iranian crude onto world markets.

With a deadline less than 24 hours away, United States, Britain, France, Germany, Russia and China were trying to break an impasse in negotiations aimed at stopping Iran from having the capacity to develop a nuclear bomb, in exchange for an easing of international sanctions.

Officials said talks on a framework accord, which is intended as a prelude to a comprehensive agreement by the end of June, could yet fall apart over disagreements on enrichment research and the pace of lifting sanctions.

“Iran has built up significant oil inventories and could immediately increase exports if sanctions are lifted,” analysts at ANZ said in a note.

Shipping sources say Iran is storing at least 30 million barrels of oil on its fleet of supertankers, as Western sanctions keep a lid on sales.

Brent oil LCOc1 was 72 cents lower at $55.57 a barrel by 0807 GMT. The contract had settled down 12 cents on Monday.

U.S. crude CLc1 was down 84 cents at $47.84 a barrel, after closing 19 cents lower.

A stronger U.S. dollar also weighed on oil prices. A firm greenback makes dollar-denominated commodities costlier for holders of other currencies. [USD/]


Asian purchases of Iranian crude fell by a quarter in February from a year ago to an average 1.02 million barrels per day (bpd), with the biggest cut by Indian refiners, government and tanker-tracking data showed.

Iran could increase oil production by some 500,000 barrels per day (bpd) in three to six months if sanctions are removed, and by an additional 700,000 bpd within another year, according to estimates by Facts Global Energy.

“Iran will be very reluctant to accept a lower quota given that it has given up so much production due to sanctions,” the consultancy said in a note.

Hedge funds, however, increased their bets on rising Brent prices last week to their highest since July 2014, exchange data showed. This was probably due to spread plays between the North Sea contract and its U.S. rival, traders said.

Short positions in U.S. crude have risen to a record high as traders bet record crude stocks in the United States will keep it under pressure relative to Brent.

U.S. commercial crude oil stocks are likely to have risen by 4.2 million barrels last week to a record high for a 12th week, a preliminary Reuters poll showed ahead of weekly data by the American Petroleum Institute later in the day. [EIA/S]

(Editing by Himani Sarkar and Subhranshu Sahu)

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Philips sells 80 percent of lighting components unit for $2.8 billion

AMSTERDAM (Reuters) – Philips (PHG.AS) has agreed to sell an 80.1 percent stake in its lighting components division for $2.8 billion to Go Scale Capital, a technology fund that will seek to expand the company’s automotive and LED businesses.

The deal announced on Tuesday is a prelude to an even bigger strategic move for Philips: spinning off its main lighting division, the world’s largest lighting maker, via a stock market flotation, as the Dutch group focuses on medical technology and selected consumer products.

Philips said the deal values the components business, which comprises an automotive lighting unit and the “Lumileds” LED manufacturing business, at $3.3 billion including debt.

ABN Amro analyst Marc Hesselink said the sale price was “considerably above market expectations”. The unit made a profit of 141 million euros on sales of 1.42 billion in 2014.

Go Capital was advised by London-based Zaoui Co, while Philips was advised by Morgan Stanley.

Philips shares, which had hit a 14-month high of 27.675 euros earlier this month, eased 0.4 percent to 26.53 euros by 0952 GMT.

Go Scale, which beat off competition from private equity firms to seal the deal, has previously invested in Boston Power, a U.S.-based manufacturer of electric vehicle batteries, and Xin Da Yang, a Eco-EV company in China.

It said it plans to expand the business, building on Philips’ customer base which includes the likes of Volkswagen (VOWG_p.DE), BMW (BMWG.DE) and Audi.

“We expect to see significant growth and unparalleled inroads into new opportunities such as electric vehicles,” Go Scale chairman Sonny Wu said.

Go Scale is funded by GSR Ventures, with offices in Hong Kong, Beijing and Silicon Valley, and by Oak Investment Partners. Consortium partners include Asia Pacific Resource Development, Nanchang Industrial Group and GSR Capital.

“There were other bidders, also good bidders, perhaps with fewer connections in the industry of semiconductors and the ability to help in building out scale,” Philips CEO Frans van Houten told reporters.

Reuters had reported that rival bidding groups led by private equity firms CVC-KKR and Bain Capital had been vying for Lumileds until the Asian-oriented group entered the bidding in mid-March.

LEDs, or light-emitting diodes, are semiconductor devices that emit light when an electric current passes through them.

Although their use has boomed in recent years, the industry has suffered from overcapacity and price erosion. Philips has said its LED business has operating margins above 10 percent after a 2012 restructuring under Pierre-Yves Lesaicherre, but needs further investment to improve scale.

Philips said it wanted to sell the subsidiary, which will be called “Lumileds,” because so many of its customers compete with Philips itself. Approximately 20 percent of component sales are to Philips’ own main lighting business.

(Editing by Jason Neely and David Holmes)

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China Baosteel executive under investigation for corruption

SHANGHAI (Reuters) – A top executive of China’s Baosteel Group, the parent of Baoshan Iron Steel (600019.SS), is being investigated for “serious disciplinary violations”, China’s corruption watchdog said on Tuesday, as Beijing intensifies its war on deep-seated graft.

President Xi Jinping has warned that corruption threatens the survival of China’s ruling Communist Party and his two-year anti-graft campaign has brought down scores of senior officials in the party, the government, the military and state-owned enterprises.

“Serious disciplinary violations” is the term usually used to refer to corruption in China.

The graft watchdog, the Central Commission for Discipline Inspection, named the Baosteel official as Vice President Cui Jian, but gave no further details in a short statement.

A spokesman for Baosteel, China’s second-largest steelmaker and the world’s fourth largest, said the company was aware of the investigation and was watching developments but had no further immediate comment. Cui could not be reached for comment.

The commission’s anti-graft efforts at state firms coincide with the imminent roll-out of ambitious new guidelines to overhaul China’s inefficient state sector.

The party has targeted 26 major state-owned firms for inspections this year, including China National Petroleum Corporation, Sinopec Group, China National Offshore Oil Corp, Shenhua Group, China National Nuclear Corp, China Southern Power Grid and China Power Investment Corp. [ID:nL4N0VM1KA]

Separately, the Commerce Ministry said that Wang Shenyang, head of its cooperation department, was being investigated for infringing rules against extravagance by “participating in golf and other events organized by companies”.

It did not elaborate.

The party has sought to curtail everything from bribery and gift-giving to lavish banquets to assuage public anger over corruption and extravagance, especially when officials are seen as abusing their positions to acquire luxuries.

(Reporting by Ruby Lian and Adam Jourdan; Additional reporting by Ben Blanchard in BEIJING; Editing by Edmund Klamann and Clarence Fernandez)

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U.S. small-business borrowing slips in February, up on year: PayNet

WASHINGTON (Reuters) – U.S. small businesses took out fewer loans last month but borrowing was up from a year ago as firms ramped up investments in their operations, according to data released on Tuesday.

The Thomson Reuters/PayNet Small Business Lending Index fell to 119.2 last month from 122.4 in January. Still, the index was up 7 percent from February 2014, signaling a steadily improving sector.

The index gauges borrowing by firms with $1 million or less in outstanding debt.

An increase of 1 percent to 2 percent indicates businesses are borrowing to replace worn out assets, PayNet founder and President Bill Phelan said.

Higher readings signal that firms are investing more to increase their production of goods and services. That could include buying new machinery, purchasing more property or expanding business divisions.

“It tells us that these businesses are investing because they are getting more orders and more purchases from their customers,” Phelan said.

Small businesses account for nearly half of gross domestic product in the United States, and an increase investments means that GDP will likely increase with a lag of two to five months.

A separate PayNet index showed loan delinquencies of 31 days to 180 days inched up by four basis points from last month to 1.57 percent.

The slight increase was no cause for concern as it indicates cautious use of credit by small firms, Phelan said, adding that defaults will be moderate in 2015.

PayNet collects real-time loan information such as originations and delinquencies from more than 250 leading U.S. lenders.

(Reporting by Elvina Nawaguna; Editing by Alan Crosby)

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Greece worries compound euro’s record quarterly fall

LONDON (Reuters) – The euro remained on track for its biggest quarterly fall and European shares for their best first quarter of the euro era on Tuesday as worries about Greece’s finances kept the single currency under pressure.

The European Central Bank’s 1 trillion euro quantitative easing programme, launched this month, has prompted investors to pile into shares on bets that a weak euro, low borrowing costs and cheap oil will help company profits surge.

The pan-European FTSEurofirst 300 .FTEU3 was up 0.2 percent on the day as traders squared up for the quarter end. It is up a whopping 16 percent since Jan. 1, with Germany’s DAX .GDAXI up 23 percent and France’s CAC .FCHI 19 percent higher, compared to a more modest 5 percent gain for London’s FTSE .FTSE.

Euro zone inflation data due at 0900 GMT is expected to show a small pick up in prices following the launch of the ECB’s stimulus, but with a year and a half of the programme still to run, investors remain upbeat on euro zone assets.

“For the moment we have decided not to take profits because Europe has been lagging for several years so it still has room to outperform,” said Didier Duret, chief investment officer at ABN Amro.

“And we think it still makes sense to allocate into the equity market because the bond yields are quite frankly repulsive these days.”

Duret was talking about the fact that bond investors effectively now have to pay to lend money to Germany as well as some other core northern euro zone members.

German Bund and other euro zone yields nudged higher in early deals, however, amid uneasy talks between Greece and the rest of the bloc about Athens’s strained finances.

Germany’s Chancellor Angela Merkel said on Monday Greece had a certain degree of flexibility on which reforms to implement but that they must “add up”.

“The question is: can and will Greece fulfil the expectations we all have?” she added during a visit to Finland.

Greece’s leader Alexis Tsipras responded by appealing for an “honest compromise” but warned he would not agree to “unconditional” demands.


Asian bourses had tracked overnight gains in U.S. stocks, with MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS up 0.5 percent and 4 percent for the quarter.

Japan’s Nikkei .N225 ended with a chunky 10 percent Q1 gain and the often volatile Shanghai Composite Index .SSEC followed up Monday’s rally as stimulus hopes saw it hit another seven-year high after a 17 percent jump this year.

“Tax cuts, reductions to down payments on second homes, along with further moves to (reserve) requirement ratios have all been introduced to assist China’s slowing housing sector and will be a medium-term positive in the global growth story,” Evan Lucas, market strategist at IG in Melbourne, said in a note.

Chinese central bank governor Zhou Xiaochuan’s recent warning that China needs to be vigilant for signs of deflation has also helped fuel hopes for more easing.

The euro was last down 0.4 percent against the dollar at $1.0788 EUR=. Its dive has been the dollar’s gain, with the greenback recording its biggest quarterly gains against the world’s top six currencies since 2008.

The Australian dollar found little support from prospects of more stimulus and monetary easing from China, Australia’s key trading partner.

The Aussie lost 0.4 percent to $0.7626 AUD=D4 after skidding more than one percent overnight amid persistent expectations of further interest rate cuts by the Reserve Bank of Australia.

U.S. crude extended losses as a deadline loomed for Iran and six world powers negotiating a deal for Tehran’s nuclear programme.

If an agreement to end Western sanctions is reached, OPEC-member Iran would be able to ship more crude into an already saturated market. [O/R]

U.S. crude was down 1.8 percent at $47.80 per barrel with Brent LCOc1 at $55.31. Both were headed for their third quarters of back-to-back falls, a run that hasn’t been seen since the late 1990s.

(Additional reporting by Shinichi Saoshiro; Editing by Catherine Evans)

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Taiwan, Norway seek to join China-backed AIIB, Japan still cautious

TOKYO/TAIPEI (Reuters) – Japan remains cautious about signing up to the China-led Asian Infrastructure Investment Bank (AIIB), indicating that Tokyo will miss the March 31 deadline for application, but both Taiwan and Norway said they would seek to join the institution.

Finance Minister Taro Aso reiterated Japan’s concerns about governance at the AIIB, its debt sustainability and environmental and social safeguards.

“Unless these conditions are secured, Japan has no choice but to be very cautious about joining,” Aso told reporters after a cabinet meeting.

Taiwan sought to join the proposed development bank despite historical animosity and a lack of formal diplomatic relations between the island and China.

In a statement released late on Monday, Taiwan presidential office spokesman Charles Chen said joining the AIIB will help Taiwan in its efforts at regional economic integration and raise the possibility of joining other multinational bodies.

It was not immediately known whether Beijing would accept Taiwan’s application to join the AIIB.

Asked about Taiwan’s application, Chinese foreign ministry spokeswoman Hua Chunying said: “Our principle has not changed, and that is that it will be an open, inclusive and multilateral organization which we welcome all sides to join.

“But for Taiwan’s application to join, it should abide by the relevant principles, which is to avoid the problem appearing of ‘two Chinas’ or ‘one China, one Taiwan’.”

China views Taiwan as a renegade province and has not ruled out the use of force to bring it under its control. However, since Taiwan’s current president Ma Ying-jeou took office in 2008, enmity has declined considerably and the two sides have signed a number of trade and investment deals.

Most countries, including the United States, do not recognize Taiwan due to pressure from China. Taiwan is not a member of the United Nations, the World Bank or the International Monetary Fund.

The AIIB is seen as a significant setback to U.S. efforts to extend its influence in the Asia-Pacific region and balance China’s growing financial clout and assertiveness.

China has set a March 31 deadline to become a founding member of the AIIB and over 40 nations have joined or said they intend to, adding clout to an institution seen as enhancing Beijing’s regional and global influence.

Norway also said it wanted to join as a prospective founder member.

“Norway is a substantial contributor to global development efforts, and wishes to join countries from Asia and other parts of the world in further refining the structure and mission of the AIIB,” Foreign Minister Boerge Brende said in a statement on a government website.

Japan and the United States are the two notable absentees.

The AIIB is seen as a challenge to the World Bank and Asian Development Bank and has drawn a cool response from the United States, although many of Washington’s allies, including Australia, South Korea, Britain, France, Germany and Italy, have announced they would join the bank.

(Reporting by Tetsushi Kajimoto in TOKYO, Jeanny Kao and Michael Gold in TAIPEI, Ben Blanchard and Sui-Lee Wee in BEIJING; Editing by Raju Gopalakrishnan)

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Cautious China banks could undermine Beijing’s property stimulus efforts

SHANGHAI (Reuters) – As stock market investors cheer Beijing’s latest bid to boost the country’s ailing housing sector, Chinese bankers are gritting their teeth over the risks they face in further relaxing lending rules to home buyers.

Alarmed by persistent weakness in the property market and its increasing drag on the economy, policymakers said on Monday they were cutting downpayments levels for the second time in six months and offering bigger tax breaks.

The hope is that by allowing buyers to get mortgages more easily, China can revive the housing market, which accounts for 15 percent of its economy, and where prices are falling at a record pace.

But for bankers who are in charge of passing on the policy discounts, the gains for home buyers are in some ways being made at their expense.

“The difficulty for us now is that the deposit has gone down, which increases the risks for us,” said a loan officer at one of China’s four biggest banks. “It’s a question of leverage.”

“We won’t lend if someone isn’t credit worthy – there is a lot of backup due diligence we do these days – and it’s got stricter,” the banker said.

Bankers at two other firms said they, too, will toe the policy line and reduce downpayment levels for second-home buyers, but that is about as far as they will go, and mortgage rates are unlikely to be lowered.

“We’re already losing money at a 70 percent downpayment level”, said a banker at a mid-sized Chinese bank. “We’re unlikely to reduce the lending rate.”

China’s biggest banks recently reported lower profits and a spike in bad loans to multi-year highs at the economy slows, adding to their concerns about increasing their exposure to weaker areas of the economy such as the property market.

A massive glut of unsold homes could also offset higher sales, keeping prices and fresh investment under pressure.

“Whether the current measures are able to support the property market remains uncertain. Nevertheless, it is getting clearer that (economic) growth has again topped policymakers’ minds,” economists at OCBC said in a research note, adding it sees increasing chances for more interest rate cuts and other easing measures in the second quarter of the year.

For share investors, however, easier lending policies for home buyers are welcome news nonetheless.

China stocks .CSI300 hit fresh seven-year highs on Tuesday morning, helped by rises in property and banking stocks. China markets have rallied 16 percent so far this year, on top of a 50 percent surge in 2014, fueled largely by expectations of more economic stimulus measures.

(Reporting by Koh Gui Qing; Editing by Kim Coghill)

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