Global economy worries prompt staffing group Adecco to lower sights

Wariness about the sluggish economic backdrop, particularly in Europe, has forced the world's biggest staffing group to lower its profitability expectations. 

PHOTO: REUTERS

JAN 18, 20166:45 PM

[ZURICH] Wariness about the sluggish economic backdrop, particularly in Europe, has forced the world's biggest staffing group to lower its profitability expectations.

Switzerland's Adecco said on Monday it expected an average margin target for 2016-2020 of 4.5-5.0 per cent. That is down from approximately 5.2 per cent for 2015, a goal it had already cut from above 5.5 per cent in November.

The target is for earnings before interest, tax and amortisation (EBITA) and excluding one-offs. It also contrasts with some of the company's rivals - Dutch staffing agency Randstad and US-based ManpowerGroup - which posted faster underlying growth last year.

Adecco had been counting on acceleration in European economic growth that did not materialise, forcing it to pare expectations.

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Even so, new chief executive Alain Dehaze said he aims to grow revenues organically "at least in line with main peers" and deliver operating cash flow conversion of around 90 per cent on average for the 2016-2020 period.

In the first two months of the fourth quarter, revenues increased by 5 per cent organically and adjusted for trading days, with a similar trend in December, Adecco said.

That is slightly above the 4 percent organic revenue growth achieved in third quarter, it said, resulting from a "slight uptick" across many regions in Europe, in particular France.

Growth in North America remained stable, the company said.

Adecco kept its policy to pay out 40-50 per cent of adjusted net earnings and a commitment to pay at least a stable dividend "barring seriously adverse economic conditions," it said, stressing its commitment to an investment-grade debt rating.

Mr Dehaze said Adecco would continue looking for"buy-and-build" takeover targets.

Its shares, which have dropped as much as 16 per cent since early December, gave up early gains to trade lower on the day. "The strategy update seems like a more pragmatic and balanced approach to running the business," Barclays analysts said. "Given prior re-investment concerns, this should reassure, returning the focus of the investment case to what it has been historically - a largely macro call." Analysts said the fitness of the economy itself remained the biggest wild card for performance.

While strong industrial data from France - its biggest market - proved promising for Adecco, analysts said worries over a US industrial slowdown presented a downside risk.

REUTERS

    
 

BOJ offers gloomy view on wages, market rout clouds outlook

The Bank of Japan expressed disappointment at how slowly companies are raising pay despite a tightening job market, suggesting its readiness to expand stimulus if the recent market turmoil further delays wage hikes. 

PHOTO: REUTERS

JAN 18, 20166:25 PM

[TOKYO] The Bank of Japan (BOJ) expressed disappointment at how slowly companies are raising pay despite a tightening job market, suggesting its readiness to expand stimulus if the recent market turmoil further delays wage hikes.

But BOJ governor Haruhiko Kuroda maintained his upbeat view on the economy and offered no clear signs that additional stimulus may be forthcoming this month.

"Japan's economy is expected to continue recovering moderately," he told a meeting of the BOJ's regional branch managers on Monday, making no mention of the global market turmoil that has sent Tokyo stocks tumbling.

Wage growth is crucial to the BOJ's goal of accelerating inflation - now barely above zero - to 2 per cent, as higher wages give consumers more money to spend and let firms raise prices.

In a report on Japan's regional economies, the BOJ said some firms in big cities are keen to raise salaries. But it signalled frustration with the pace of increases nationwide.

"Many small- and medium-sized companies in regional areas remain cautious of raising regular pay for permanent employees," the central bank said in the quarterly report.

"For now, momentum toward raising salaries next fiscal year has failed to gain steam," with many firms wary of a shrinking domestic market and global uncertainties, it said.

The gloomy view on wages underscores the challenges the BOJ faces in eradicating Japan's sticky deflationary mindset.

Slumping oil costs have weighed on consumer prices and inflation expectations, keeping alive anticipation of more easing as early as the Jan 28-29 rate review.

"Developments in wages could definitely impact monetary policy," said Daiju Aoki, economist at UBS Securities.

"I think the BOJ can wait and see, but the risk is corporate sentiment worsens due to financial market turmoil. Sentiment matters for wages." The BOJ maintained its rosy assessment for seven of nine regional economies.

It was the most upbeat in nearly eight years on Tokai, home to Toyota Motor Corp, but cut the assessment for Kinki, western Japan, where Panasonic Corp is based, due to sluggish emerging market demand for machinery.

Kinki's companies "are doing well now but some are voicing concern over the outlook", said Atsushi Miyanoya, head of the BOJ's branch overseeing the region.

The yen's rebound to around 117 to the dollar caught some exporters off guard, as many of them prefer the currency pair to move stably around 120 yen, he said.

REUTERS

    
 

China to lend Egypt central bank US$1b during president's visit: ambassador

China is expected to lend Egypt's central bank US$1 billion to help shore up its foreign reserves during a visit by the Chinese president this week, Egypt's ambassador to Beijing said in comments to the official MENA news agency late on Sunday. 

PHOTO: BLOOMBERG

JAN 18, 20166:23 PM

[CAIRO] China is expected to lend Egypt's central bank US$1 billion to help shore up its foreign reserves during a visit by the Chinese president this week, Egypt's ambassador to Beijing said in comments to the official MENA news agency late on Sunday.

Egypt is battling to overcome an acute dollar shortage with a raft of rules aimed at cutting back imports and thereby reducing demand for hard currency.

Chinese President Xi Jinping will arrive later this week, and the two countries are expected to discuss potential Chinese investments in an array of Egyptian projects including one to build a new administrative capital.

Egypt's ambassador to Beijing, Magdi Amer, said China was also due to sign a US$700 million agreement with the state-owned National Bank of Egypt to provide a line of credit to finance future projects as well as a US$100 million loan agreement with Banque Misr aimed at financing small and medium-seized projects.

Egypt's central bank has faced strong pressure to devalue the currency in line with other emerging markets but has continued to defend it despite dwindling foreign reserves.

Foreign reserves in Egypt have fallen to US$16.445 billion in December from around US$36 billion before the 2011 uprising ushered in a period of turmoil, which scared off foreign investors and tourists - key sources of hard currency.

The Chinese leader is visiting Egypt as part of a regional tour that will also take in Gulf rivals Saudi Arabia and Iran.

REUTERS

    
 

Carney's 2016 BOE policy view awaited as wage growth slows

Mark Carney is set to share his thoughts on the outlook for the first time this year, the same week as a slew of data gives fresh insight into prospects for prices and policy. 

PHOTO: REUTERS

JAN 18, 20165:31 PM

[LONDON] Mark Carney is set to share his thoughts on the outlook for the first time this year, the same week as a slew of data gives fresh insight into prospects for prices and policy.

Weaker pay growth may offer the Bank of England governor some vindication after officials left their benchmark interest rate at a record low this month. Reports on employment, wages, inflation and retail sales will help shed light on the economy's performance, while Mr Carney and Monetary Policy Committee member Gertjan Vlieghe are due to give speeches.

The MPC was already on a cautious footing at the end of 2015, and recent market turmoil, concern about the health of China's economy and a fresh slump in oil have reinforced that view. The International Monetary Fund will update its global forecasts on Tuesday after a tumultuous start to the year that prompted economists and investors to push back bets on the timing of a BOE rate increase.

"Carney may give color on the financial-market disruptions and what that means and on the oil-price shock," said Phil Rush, an economist at Nomura International in London. "Wage growth is likely to tick down further, and that keeps the pressure to hike off the MPC." The picture at home also isn't helping the case for the benchmark UK rate to be increased from 0.5 per cent, where it's been for almost seven years. In addition to weaker wage growth, surveys show the UK's upcoming referendum on whether to remain part of the European Union is weighing on confidence.

In their assessment last week, BOE officials said Brent crude's decline to a 12-year low was likely to weigh on inflation, and they cut their near-term forecast. Consumer prices probably rose an annual 0.2 per cent in December, according to a Bloomberg survey before data on Tuesday. That would be the fastest since January 2015, but still far below the BOE's 2 per cent target.

Mr Carney is set to deliver a lecture at noon the same day at the School of Economics and Finance at Queen Mary University in London, before traveling to Davos for the annual meeting of the World Economic Forum. His remarks will be closely watched for clues into his thinking on the evolution of prices. Vlieghe speaks on demographics at the London School of Economics at 6:30 pm on Monday.

The pound rose against the dollar and was trading at US$1.4295 as of 8:17 am London time, up 0.3 per cent since Friday.

Inflation isn't set to pickup any time soon. In its 2016 outlook, published Monday, EY ITEM Club predicted the headline rate will remain below 0.5 per cent until the middle of the year and won't reach 1 percent until the final quarter. That will make it "difficult" for the MPC to increase the key rate until late in the year, it said.

At the same time, data in the labor market, which officials have put at the center of policy, has suggested a cooling in recent months. Deputy Governor Minouche Shafik has said she's waiting for wages to accelerate relative to productivity before voting for a lift off in interest rates. A report on Wednesday is forecast to show regular pay rose an annual 1.8 per cent in November, the weakest since January.

While there is nervousness about the global outlook, the U.K. economy is still growing and the unemployment rate is at the lowest in more than seven years. According to Samuel Tombs of Pantheon Macroeconomics, markets have gone "too far" in expecting rates to remain on hold for another year.

"The earnings figures are key," he said. Mr Carney may "suggest that he intends to raise rates sooner provided the labor market continues to tighten." -With assistance from Harumi Ichikura.

BLOOMBERG

    
 

Asian markets extend rout as oil sinks below US$28

Oil prices plunged below US$28 a barrel early Monday, hitting energy firms and extending a rout across Asian markets after sanctions were lifted against Iran, allowing the key producer to resume crude exports.

PHOTO: AFP

JAN 18, 20163:37 PM

[HONG KONG] Oil prices plunged below US$28 a barrel early Monday, hitting energy firms and extending losses across Asian markets after sanctions were lifted against Iran, allowing the key producer to resume crude exports.

While the decision to free Tehran of the strict embargoes had been well telegraphed, the news hammered Middle East equities Sunday, which were already under pressure as the price of oil sits at 12-year lows.

• For more stories on the oil rout, visit btd.sg/oilrout14

The United States and the European Union lifted the sanctions at the weekend after the UN's atomic watchdog confirmed Iran had complied with its obligations under a landmark deal last year to curb its nuclear programme.

The country is now free to start shipping crude, adding to a supply glut, which – along with weak demand and a slowing global economy – has slashed prices by about three quarters since mid-2014.

On Monday a barrel of Brent oil fell 4.4 per cent to US$27.67 at one point before bouncing back above US$28. The last time Brent closed below US$28 was in November 2003 and Nomura Holdings is tipping further falls towards US$25.

In afternoon trade Brent was down 2.8 per cent at US$28.15 and US benchmark West Texas Intermediate was 2.6 per cent off at US$28.70.

"There is ongoing negative pressure on oil prices from oversupply," Ric Spooner, a chief analyst at CMC Markets in Sydney, told Bloomberg News.

"Iran is not new, but we've arrived now at the point where sanctions have been removed and it's going to be a key focus for the markets over coming weeks. The question is how much supply can come online in the short term." 

Singapore’s DBS Bank said in a research note that adjusted for inflation oil was now cheaper than at any time since 1998, at the height of the Asian financial crisis.

The news was met with horror in Gulf trading, with stock markets in Saudi Arabia, Qatar, Dubai, Abu Dhabi and Kuwait all battered.

Most Asian equities followed suit, with Tokyo closing down 1.1 per cent near one-year lows, Hong Kong ending 1.5 per cent lower, Sydney shedding 0.7 per cent by the end and Wellington 1.1 per cent lower.

There were also sharp losses in Manila and Jakarta.

But Shanghai again swung in and out of positive territory, having plunged almost nine per cent last week. The benchmark index ended 0.4 per cent lower.

Energy firms were among the big losers, with CNOOC in Hong Kong down 4.5 per cent and PetroChina shedding 2.1 per cent.

Sydney-listed mining giant BHP Billiton was 2.9 per cent lower and Woodside Petroleum retreated 2.6 per cent. Inpex slipped 1.5 per cent in Tokyo.

The Chinese market was given some support by the People's Bank of China's decision to increase the yuan currency's rate against the dollar. The yuan's recent weakness has been a key contributor to a rout in global markets that has characterised the start of 2016.

In a bid to prevent cash outflows which have also hit the yuan, the PBoC said Monday it would require foreign banks to hold reserves of the currency.

Overseas lenders have until now been set a reserve requirement ratio – the amount of depositor funds they must keep aside – of zero. But from next week they will be subject to similar rules as domestic lenders, which are as high as 17.5 per cent.

Markets are now nervously awaiting the release Tuesday of Chinese economic growth data, with analysts surveyed by AFP forecasting the slowest rate in 25 years.

Worries about the state of China’s economy have hit markets from Asia to the Americas over the past two weeks, with Beijing’s ability to handle the crisis being brought into question.

In early European trade London slipped 0.1 per cent while Frankfurt declined marginally and Paris edged up slightly.

AFP