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Tuesday, February 10, 2015

U.S. warns G20 against using exchange rates to boost exports

DASHA AFANASIEVA AND NICK TATTERSALL

ISTANBUL — Reuters

Published Tuesday, Feb. 10 2015, 6:50 AM EST

Last updated Tuesday, Feb. 10 2015, 6:57 AM EST

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The United States urged a meeting of the Group of 20 leading economies not to resort to currency devaluations to boost exports, while a draft communiqué gave a gloomy assessment on Tuesday of the outlook for global growth.

The meeting of finance ministers and central bankers in Istanbul comes at a difficult time, with major economies running at different speeds, monetary policies diverging and Greece casting a new shadow over Europe.

U.S. Treasury Secretary Jack Lew underlined the need to stick to existing commitments on exchange rate policy, a Treasury official said, pledges which include refraining from competitive exchange rate devaluations.

“Secretary Lew strongly emphasized ... that we are highly focused on ensuring that U.S. workers and firms play on a level playing field and no country should use their exchange rate to increase exports,” the official said.

The U.S. Federal Reserve looks set to raise interest rates this year, a stark contrast to huge money printing programs by the European Central Bank and Bank of Japan and impromptu rate cuts from India to Australia, Canada to Denmark.

A by-product of that is the dollar being driven higher while other major currencies tumble. There has generally been an acceptance in Washington that a weaker euro and yen is an inevitable consequence of actions to revive moribund economies, something the United States has consistently called for.

According to a draft communiqué for the meeting, obtained by Reuters overnight and intended for adoption later on Tuesday, the G20 welcomed the ECB’s quantitative easing - despite German concern - and said it would further support recovery in the euro area.

In a nod to expectations that the Fed will raise interest rates, the draft said some advanced economies with stronger growth prospects were moving closer to “policy normalization”.

But it cautioned: “In an environment of divergent monetary policy settings and rising financial market volatility, policy settings should be carefully calibrated and clearly communicated to minimize negative spillovers.”

The draft welcomed the favourable outlook in some key economies but gave a gloomy assessment of the global economy as a whole, saying growth was uneven and trade slow.

It said G20 members would act decisively on monetary and fiscal policy, if needed, to combat the risk of persistent stagnation, although it said the sharp decline in oil prices would provide some boost.

“(There’s a) school of thought which is kind of winning in this world that the only way you can be credible and build greater confidence is if you’re honest about where things stand,” said one senior G20 official involved in the talks.

Germany, which boasts a record current account surplus, has been unbending in the face of G20 calls to spend more and boost demand. The draft communiqué also pledged to put debt as a share of output on a sustainable path.

The G20 officials look set to reject a Turkish proposal to set countries specific investment targets to spur a world economy which looks increasingly reliant on the United States for growth.

The draft text made no specific mention of Greece, but its efforts to strike a new debt agreement with the euro zone dominated the agenda in bilateral meetings and other groupings on the sidelines, officials said.

Canada’s Finance Minister Joe Oliver said regulatory and financial reforms had helped diminish the risk Greece may pose to the euro zone, with Athens seeking a new debt arrangement and demanding a reversal of austerity.

Asked about the Greek finance minister’s description of the euro zone as a house of cards that would collapse if Greece left, Oliver said: “I would just say, he seems to be talking to his base.

“We certainly hope that Greece will stay in the currency union, but that remains to be seen,” he added.

Chinese investors target hotels, wineries, mineral water in British Columbia

Julie Gordon and Nicole Mordant, Reuters
10:14 AM, E.T. | February 10, 2015
Canadian

Tags: China, Vancouver

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When Liu Chuang landed in Vancouver in 2013, he noticed that most of the Chinese immigrants he met were heavily invested in residential real estate and hungry to diversify.
Flipping houses didn't appeal to the 39-year-old entrepreneur, who is launching a Vancouver-based tech incubator to help his Chinese-born friends invest in local start-ups.
"The Chinese I know ... they’ve already bought quite a few houses, they really don’t want to buy any more," said Liu, who was also born in China and co-founded venture capital firm Nextplay Ventures. "Now they want to invest in technology or other industries that can give a good return on investment."
Liu represents what real estate agents, lawyers and immigration consultants say is a transformative shift in where wealthy Asian individuals and families, primarily from mainland China, place their money in British Columbia, the West Coast province.
Vancouver has been a top destination for Asian immigrants for decades, helping make it Canada's most expensive housing market and one consistently ranked as North America's least affordable. Houses and luxury condos in the Vancouver area have been the investment of choice for both well-heeled new arrivals and China-based investors putting money abroad.
But with the Vancouver market looking pricey, many of these investors are seeking other opportunities. They range from hotels and golf courses targeting Chinese tourists to berry farms, mineral water sources, and wineries that export to Asia.
"The days of parking capital in five houses in Vancouver have passed," said Richard Kurland, a local immigration lawyer.
While provincial agencies and industry associations contacted by Reuters do not collect figures for foreign investment in commercial property, there are threads of data that support the anecdotal evidence.
Hotel sales to buyers with ties to China increased to four in 2014 from just one in 2011, according to sales information provided to Reuters by global hotel consulting firm HVS. And reports of rising demand for wineries and farms has coincided with a 60 percent jump in the value of British Columbia wine exports to China from 2010 through 2013, and a doubling in the value of agricultural food exports to China in that same period.
Those servicing the new wave says Chinese investors are also looking to put down roots and build a local business for their children, with British Columbia’s mild climate and clean air increasingly seen as more desirable than China’s pollution-hit cities.
This marks a shift from a tradition among many wealthy families who had lived in Canada just long enough to secure citizenship, and to put their kids through school, before returning to Asia.
The recent rise in demand for commercial land, tourism properties, and even entire villages has coincided with China President Xi Jinping's "Operation Fox Hunt," which aims to nab allegedly corrupt officials who have moved abroad and to seize their assets.
The corruption crackdown has even legitimate business people concerned about the future and looking to diversify their holdings, say those serving this community
"It has to do with the perceived political climate in China," said Alice Chen, managing director at SKY Capital Group, which advises wealthy Chinese on acquisition opportunities.
"Economic and political policies can change at any minute, which affects their businesses, so they see Canada as the more stable environment."
HOTELS, WINE AND WATER
The recent hotel deals were mostly in the $15 million to $30 million range, said Carrie Russell, managing director for Canada with HVS. Chinese buyers are also seeking to acquire expensive luxury hotels, though they have not been as successful in winning the bidding for those, she said.
Chinese groups are also looking to crack into property development, seeking land to build condos or major mixed-use projects, said David Goodman, a real estate agent with HQ Commercial.
"Over the last three or four years, they were dipping their feet in. Now they are really setting up shop," he said.
These investors are also looking outside of coastal Vancouver to agribusiness and tourism opportunities in British Columbia's interior and remote north, such as the ghost town of Bradian, which sold to a group of Chinese investors in December. They plan to turn it into a mini Whistler-style resort for everything from skiing to snowmobiling and fishing.
Among the most popular investments are wineries, which appeal to buyers looking for a lifestyle business that can be passed on to the next generation, said Christa Frosch, an agent with Sotheby's International Realty Canada.
In 2009 there was just one Chinese-owned winery in British Columbia, said Frosch. But now she estimates about 10 percent of the province's 230 licensed wineries are owned by people with ties to mainland China.
Chinese ownership has risen in tandem with trade, and now roughly 90 percent of the province’s wine exports go to China.
Some investors are eyeing another luxury export - spring water.
Immigration consultant Alex Liao said he has clients looking to spend at least $20 million to buy a well and set up a bottling plant to export mountain water to China, where the economic boom has also meant higher pollution.
"One of my clients is exporting - I cannot believe it - 200 container loads of mineral water from B.C. to China every single month," said Liao. "Lots of people, right now, are buying wells."
FOR THE KIDS
Julie Wei, a residential agent with Macdonald Realty who now also helps clients find commercial opportunities, says the desire to buy a Canadian business is motivated in some cases by children who have spent years in Vancouver and no longer want to return to China.
That's what happened to Ben Bi, who came to Canada for university and ended up staying. Backed by his family's real estate business in China, Bi has bought a tract of land and is designing a high-end multi-home development.
The project is the first of many the 34-year-old hopes to tackle, as he looks to shift more of the focus of the family business to Canada from China. His parents first resisted the plan, but changed their minds after learning more about Vancouver.
"They actually want to see the next generation, and even the generation after me, have a better life," he said.

Poloz denies ‘talking down’ loonie

Theophilos Argitis, Bloomberg
9:11 AM, E.T. | February 10, 2015
Economy

Tags: Loonie, Stephen Poloz

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Bank of Canada Governor Stephen Poloz rejected speculation that he’s trying to boost growth by weakening the Canadian dollar, saying the currency’s decline reflects a deterioration in the economy’s outlook.
“I honestly reject the notion that I’m talking down the dollar,” Poloz told reporters in Istanbul, where he’s attending a meeting of finance chiefs from the Group of 20. “It’s not about what we did. It’s about how the economy has behaved.”
Poloz said that since he was appointed in June 2013, the economy has performed below policy makers’ expectations even before the decline in oil prices.
“It’s only by being open about that and people seeing it happening and oil prices declining on top of that that the dollar has moved,” Poloz said. “The oil-price move, my goodness, oil prices have got to be responsible for 99 percent of what we’ve seen.”
The Canadian dollar has lost 18 percent against the U.S. dollar since Poloz became governor. It’s fallen 2.9 percent since he unexpectedly cut interest rates on Jan. 21 by 0.25 percentage point to 1 percent.
Derivatives trading indicates a better than 50-50 chance the central bank will lower its benchmark interest rate to 0.5 percent at the March 4 meeting. Asked about market expectations for further rate cuts, Poloz said it will all depend on the economy’s fundamentals.
“Markets presumably look at the oil-price shock itself and would ask themselves how’s the economy performing?” Poloz said. “If they figure that out, then they would know what we might have to do.”
“It’s not about what we’re doing with that, it’s about the fundamentals,” he said.

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The ECB Should Stay Out of Politics

FEB 10, 2015 2:00 AM EST

By Clive Crook

Has the European Central Bank made itself the judge of which countries remain members of the euro area? That would be an amazing assertion of power -- on the face of it, completely at odds with its usual insistence that it stands outside politics. Yet that is more or less what the ECB seemed to do with its pronouncements on Greek debt last week.

Greece's new government has promised voters not to renew the European Union's bailout program, due to expire at the end of this month. It wants new terms, and a financial breathing-space while they're negotiated. Last week the ECB said that since it can no longer assume a program will be in place, it would stop accepting Greek government bonds and government-guaranteed debt as collateral for lending to Greek banks. After February 11th, it would no longer act as a lender of last resort for Greece.

If that was all there was to it, the ECB announcement would have been tantamount to expelling Greece from the euro system. Greeks have been pulling money out of their banks in recent weeks and months. If a full-scale run developed, and the banks could no longer call on the ECB for liquidity, Greece would need to close its banks and, in short order, begin issuing its own currency. No more monetary union.

As you might expect, it's a bit more complicated than that. For now, the ECB said, Greek banks could continue to access "emergency liquidity assistance" from the Bank of Greece, its local subsidiary. At some point, a supermajority of the ECB's governing council could vote to suspend that privilege as well. Until that happens, Greece still has a lender of last resort -- albeit a quasi-national one, which heightens doubts about the long-term integrity of the euro system.

So what on earth did the ECB hope to achieve with its announcement last week?

The ECB said the move was "in line with existing euro system rules." No doubt that's true: The ECB hasn't broken any rules. But the implication that the rules obliged it to act as it did is also wrong. It didn't need to say anything. That's why the announcement surprised the markets. Note, too, that the governing council was split on the decision. When it comes to liquidity assistance, the ECB largely makes up its own rules about what to accept as collateral. If it wanted to, it could continue to accept Greek bonds as collateral after the bailout program ends. There was certainly no need to announce that, evenbefore the program ends, Greek bonds would no longer qualify.

In a bizarre editorial, the Financial Times greeted the announcement as the ECB's recusing itself from a fraught political stand-off -- as, in effect, an injunction to the politicians to step forward and end the crisis. The more natural interpretation is that the ECB, far from stepping aside, was inserting itself more forcefully into the stand-off, by taking sides against Greece and warning it of dire consequences if it persisted on its present course.

That was a very dangerous move. It caused Greek bond yields and various measures of euro-system volatility to spike. The perceived probability of a Greek exit from the euro was already more than zero; the announcement nudged it a bit higher. It could have been -- and might yet prove to be -- the trigger that causes a full-scale bank run.

How shall I put this? It isn't good practice for a central bank to use the threat of a bank run to enforce fiscal discipline. To be sure, the ECB has ventured into this kind of fiscal enforcement before -- in Ireland and Cyprus -- and, after a fashion, got away with it. That won't be much of a defense if, trying the gambit once too often, the central bank ends up collapsing the system that its president, Mario Draghi, has pledged to preserve.

Whether Greece remains a member of the euro system, and what kind of accommodation the other EU governments will countenance to keep it there, are intensely political questions. The ECB should stay as far away from them as possible. As long as Greece is in the euro system, the ECB should offer its services as lender of last resort -- and that's that.

To contact the author on this story:
Clive Crook at ccrook5@bloomberg.net

Clive Crook is a Bloomberg View columnist and a member of the Bloomberg View editorial board. A former chief Washington commentator of the Financial Times, he previously worked at the Economist and as a senior editor at the Atlantic. Read more.

G20 pledges decisive monetary, fiscal action if needed: Draft text

PUBLISHED ON FEB 10, 2015 11:58 AM

ISTANBUL (Reuters) - The Group of 20 (G20) leading economies will pledge to act decisively on monetary and fiscal policy if needed to combat the risk of persistent stagnation, according to a draft communique obtained by Reuters on Tuesday.

The communique, intended for adoption by G20 ministers later on Tuesday at a meeting in Istanbul, pointed to the risk of prolonged low inflation, sluggish growth and demand weakness in some advanced economies.

"Accordingly, we will continuously review our monetary and fiscal policy settings and act decisively, if needed," the draft document said.

The draft welcomed the favourable outlook in some key economies but gave a gloomy assessment of the global economy as a whole, saying growth was uneven and trade growth slow.

Monday, February 9, 2015

Gold adds to gains as fears over Greece hit equities

10 Feb11:55 AM

[SINGAPORE] Gold extended gains to a second straight session on Tuesday as worries over Greece's future in the eurozone and a decline in global equities supported the safe-haven metal.

Spot gold rose 0.3 per cent to US$1,242.90 an ounce by 0315 GMT, after gaining 0.5 per cent on Monday. The metal had hit a three-week low of US$1,228.25 last week.

Bullion got a boost as nervousness over Greece potentially withdrawing from the euro and escalating conflict in Ukraine sapped risk appetite and hurt stocks.

"With ongoing concerns surrounding Greece and a potential default, as well as the Ukraine crisis, gold should find support and hold above the 55-day moving average at US$1,225 and 100 day moving average at US$1,217 in the near term," said Jason Cerisola, a metals dealer at MKS Group.

The probability of Greece leaving the eurozone has risen several notches as Prime Minister Alexis Tsipras has taken an increasingly hard line over government debt. Tsipras has insisted that his country would not extend its reform-linked bailout.

European Commission President Jean-Claude Juncker warned Greece not to expect the eurozone to bow to Tsipras' demands in a growing confrontation that spooked financial markets and prompted US and Canadian pleas for calm and compromise.

"It is hard to conceive of gold selling off substantially given the prevailing uncertainty and considering the very real possibility that Greece could now default on its debts," said INTL FCStone analyst Edward Meir.

Investors tend to bid up gold during times of economic and geopolitical uncertainties.

Markets were also eyeing developments in Ukraine. US President Barack Obama signalled on Monday he will wait for the results of high-stakes talks on Ukraine before deciding whether to arm the Kiev government.

Also helping the precious metal was the fading rally in the US dollar.

The dollar index, a measure of the greenback's strength against a basket of major currencies, dipped slightly as commodity currencies and the euro edged higher, though it still wasn't too far from a 11-year peak.

A stronger greenback makes dollar-denominated gold more expensive for holders of other currencies.

REUTERS

Tuesday, February 10, 2015

U.S. warns G20 against using exchange rates to boost exports

U.S. warns G20 against using exchange rates to boost exports

Chinese investors target hotels, wineries, mineral water in British Columbia

Chinese investors target hotels, wineries, mineral water in British Columbia