Italian PM Renzi compares EU to sinking ship

Italian Prime Minister Matteo Renzi has stepped up his war of words with Brussels by comparing the European Union to the orchestra that kept on playing as the Titanic sunk to the bottom of the Atlantic.

PHOTO: BLOOMBERG

FEB 10, 20169:25 PM

[ROME] Italian Prime Minister Matteo Renzi has stepped up his war of words with Brussels by comparing the European Union to the orchestra that kept on playing as the Titanic sunk to the bottom of the Atlantic.

The outspoken leader, who has clashed with EU officials over budget rules and other issues, made the comment in an interview published the day after Rome launched a push for the EU to adopt a two-speed approach to its future development.

"The EU is like the orchestra playing on the Titanic," Renzi told Bloomberg, insisting his revitalised and reformed Italy had earned the right to play a leading role in shaping the bloc's destiny.

"Today we have done reforms and we are in a position to say to EU partners: 'friends, we can change this wrong, bureaucratic approach.'" Renzi has notably clashed with Brussels over Rome's demands for leeway on the EU's Stability Pact budget rules to allow him to revive the struggling Italian economy with tax cuts and growth-orientated spending.

Behind the technical debate over whether costs for one-off structural reforms or dealing with the migration crisis can be discounted from the calculation of deficit levels, lies a fundamental difference of economic philosophy.

Renzi has often referred to the German-inspired Stability Pact as the "Stupidity Pact".

The 41-year-old former mayor of Florence insists he is a Europhile but he often sounds like a Eurosceptic as he rails against Brussels "technocrats" or the failure of the EU to act decisively over the migrant crisis or the chaos in Libya.

He has challenged France over temporary border closures linked to migrant flows, Germany over a major gas pipeline project and fought the European Commission over the consolidation of bad debts by Italy's banks as well as budget issues.

In a reflection of Italy's more active diplomacy, Foreign Minister Paolo Gentiloni on Tuesday hosted a dinner for his counterparts from the bloc's six founding member states.

Billed as the start of a reflection on the EU's future, the ministers endorsed a statement reiterating their commitment to "ever closer union" while signalling that not all member states would be expected to pursue the goal.

Britain has demanded an opt out from the "ever closer" principle written into EU treaties as part of a package of reforms it wants agreed before holding an in-out referendum on its membership.

Prime Minister David Cameron is hoping to tie down a deal at an EU summit in Brussels on February 18-19.

Italy has backed Britain's right to opt out of any further pooling of sovereignty. That stance was reflected in a clause in Tuesday's Italian-drafted statement which said the EU "allows for different paths of integration."

AFP

    
 

UK employers plan to raise wages by 2.8% in 2016: Bank of England

British private sector employers plan to raise wages by 2.8 per cent this year compared with 2.4 per cent in 2015, a Bank of England (BoE) survey showed on Wednesday, offering policymakers some assurance that wages will pick up in line with their forecasts. 

PHOTO: BLOOMBERG

FEB 10, 20166:44 PM

[LONDON] British private sector employers plan to raise wages by 2.8 per cent this year compared with 2.4 per cent in 2015, a Bank of England (BoE) survey showed on Wednesday, offering policymakers some assurance that wages will pick up in line with their forecasts.

BoE governor Mark Carney has said chunkier wage rises are one likely precondition for increasing interest rates. Growth in Britons' average earnings reached 3 per cent in mid-2015 but slowed later in the year.

Last week the central bank trimmed its wage growth forecast and said average weekly earnings would rise at an annual rate of 3 per cent by the end of 2016, compared with an average of more than 4 per cent before the financial crisis that began in 2007.

The BoE's annual survey of employers covered 342 firms with a total of 600,000 staff. The survey responses are adjusted to make them representative of private-sector firms in the economy as a whole.

The increase in wage settlements was expected to be biggest in the consumer services sector, where retailers and restaurants are exposed to larger-than-normal increases in the minimum wage.

"Broadly consistent with the expected pickup in settlements, a net balance of nearly 40 per cent of respondents expected total labour cost growth per employee to increase in 2016, compared with an equivalent figure of just over 20 per cent in last year's survey," the central bank said.

REUTERS

      

Japan announces fresh N Korea sanctions after rocket launch

FEB 10, 20166:38 PM

[TOKYO] Japan announced fresh sanctions against North Korea on Wednesday for its latest rocket launch, including a total ban on shipping from the country and barring Pyongyang's nationals from entering.

Japan's announcement comes after the UN Security Council strongly condemned Sunday's rocket launch and agreed to move quickly to impose new sanctions of its own.

"We have decided to take firm sanction steps," Japanese Prime Minister Shinzo Abe told reporters of the latest move, which adds to measures Japan already has in place over past North Korean nuclear and missile tests.

The measures include prohibiting North Korean ships from entering Japanese ports and a total entry ban on North Korean nationals into Japan, a government statement said.

"All North Korean ships, including those for humanitarian purposes, shall be banned from coming to Japanese ports," the statement said.

"Third-country ships that visited North Korea shall be also banned from entering," it added.

The measures also toughen financial reporting requirements for people transporting cash to North Korea, the statement added.

AFP

    
 

'Less than zero': Japan's negative yield bond explained

FEB 10, 20166:10 PM

[TOKYO] The yield on Japan's benchmark 10-year government bond dipped below zero for the first time this week, offering the topsy-turvy promise of investors paying to lend someone money.

Sovereign bonds are a way for governments to raise cash for their spending plans, promising lenders (investors) a guaranteed income - or yield - per year.

Like any other loan, borrowers usually have to pay interest on the money, and have to pay back the capital at the end of a fixed period.

Nearly all countries issue these bonds and - like other loans - the amount they pay generally depends on how risky lenders believe they are. If a lender thinks his money is very safe, he won't charge much interest; conversely, if he's worried the loan will go bad, he'll charge a lot.

The United States pays about 1.7 per cent, Germany pays around 0.2 per cent and hard-hit Greece must pay about 10 per cent on its decade-long notes to attract wary investors.

That's right, meaning anyone buying a bond (becoming a lender) has to pay for it.

For example, if an investor was to hand the government 100,000 yen (S$1218) for a 10-year bond at Tuesday's -0.035 per cent rate, it would actually cost him 3,500 yen, so he would only get back 96,500 yen.

For the man in the street, the answer is that they wouldn't. They would be much better off stuffing their cash under the mattress.

But Japan's government bonds are overwhelmingly held by institutions like banks and insurers rather than mom and pop investors.

And they would need a lot of mattresses to hide the cash they're sitting on.

Bonds are generally seen as super safe investments where capital is all but guaranteed, even if they pay very little - or no - interest. This means they become very sought after during times of economic crisis such as that currently roiling global markets.

And in any case, the options for Japanese banks are limited - the Bank of Japan (BoJ) has already reduced its benchmark interest rate to -0.1 percent, so keeping cash in its vaults is expensive, and -0.035 per cent seems like quite a good deal.

The benchmark 10-year bond crept back into positive territory on Wednesday but could head south again.

But the BoJ's negative interest rate has so far failed to have the desired effect of forcing banks to spend their cash, and some analysts suspect the central bank could push the rate even lower; that, in turn, could squeeze bond rates further.

However, the BoJ is in the middle of a vast bond-buying scheme as part of a plan to stimulate the economy, so banks and insurance companies might want to gamble on the idea that the central bank will expand this plan.

That means if they buy below-zero yield bonds now and sell them back to the BoJ at a later date when yields have gone up, they will make money.

AFP

    
 

UK industrial output suffers biggest drop since 2012 in December

FEB 10, 20165:41 PM

[LONDON] British industrial output suffered its sharpest monthly drop in December since 2012, driven down by declines in mining, oil and gas extraction and manufacturing, official data showed on Wednesday.

The Office for National Statistics also revised down its estimate for industrial output in the fourth quarter to show a 0.5 per cent drop from a 0.2 per cent decline previously. It said this would have a negligible impact on its previous estimate of economic growth.

Britain has been one of the fastest-growing major advanced economies in the world for the last couple of years. But it has relied heavily on domestically focused services for growth, frustrating hopes for a better-balanced recovery.

Industrial output fell 1.1 per cent month-on-month in December after a 0.8 per cent drop in November, the Office for National Statistics said. Economists polled by Reuters had expected it to edge down only 0.1 per cent.

The manufacturing sector failed to contribute to British economic growth in 2015 and Wednesday's data augured badly for this year.

Output in manufacturing fell for a third month in a row for the first time since early 2009, dropping 0.2 per cent on the month after falling 0.3 per cent in November. Economists had expected manufacturing output to edge up 0.1 per cent in November.

Both industrial and manufacturing output showed their biggest annual declines in December since mid-2013.

Finance minister George Osborne has warned that the economy was facing a "dangerous cocktail" of risks from overseas in 2016, as growth slows in major emerging markets, stock markets tumble and a slump in oil prices reduces demand from oil-exporting nations.

Output from the oil and gas extraction sector fell 4.6 per cent on the month, the biggest decline since September.

Brent crude oil prices slid 16 per cent in December and 35 per cent for 2015 as a whole.

REUTERS

    
 

Draghi could scrap biggest note to fight crime and deflation

As the European Central Bank ponders pushing its deposit rate further below zero, it finds itself aligned with authorities wanting to curb a means of tax evasion and terrorism financing. 

PHOTO: REUTERS

FEB 10, 20165:24 PM

[FRANKFURT] The days of the 500-euro note could be numbered, and not just because it's the favorite of crime lords everywhere.

As the European Central Bank ponders pushing its deposit rate further below zero, it finds itself aligned with authorities wanting to curb a means of tax evasion and terrorism financing. If, as mooted by ECB President Mario Draghi, policy makers abolished the region's most-valuable bank note, they'd also help remove a major barrier to pushing interest rates lower.

Deeper negative rates could at some point push lenders to move their money out of their central bank deposit account and into cash rather than endlessly suffer losses. In the  euro area, where the 500-euro note means the equivalent of one billion dollars of currency only takes up 3 cubic meters, scrapping that denomination would make it harder to hold large amounts of currency.

Abolishing the largest notes "would allow some further cut in the level of nominal interest rates because it would make the storage of cash considerably more expensive or difficult," Charles Goodhart, a former policy maker at the Bank of England and a professor at the London School of Economics, said in an interview. "There's a reasonable chance that we might get an upper limit on the denomination in line with that which any respectable country ought to provide."

With the Bank of Japan taking its own first foray into negative interest rates last month, a once-impossible-sounding policy tool is becoming mainstream in a world where conventional rate cuts have been used up but inflation is weak and growth fragile. While policy makers in Frankfurt can add to their existing program of asset purchases if need be, they're also signaling they're willing to cut their deposit rate below the current minus 0.3 per cent.

While that's happening, a new push is underway by European governments to stem the ability of money launderers, tax evaders and terrorists to use cash for their activities, in part prompted by the attacks in Paris in November.

One stream, as promoted by the German government to the dismay of the general public, is an EU-wide upper limit on cash payments. Cash represents 80 percent of retail payments in Germany, and the government initiative prompted an angry petition by tabloid newspaper Bild this week.

The other concerns the abolition of the 500-euro note.

"That's a decision for the ECB Governing Council," Bundesbank President Jens Weidmann said at a press conference in Paris on Tuesday. "Both follow the same goal, which is to curtail illegal activities." Weidmann also said the outlook has clouded and that the ECB will discuss its response at its meeting in March. Analysts are already placing bets on a fresh cut in the deposit rate, including JPMorgan Chase & Co's Greg Fuzesi, who forecasts two 20 basis-point reductions this year. A paper published Tuesday by Fuzesi's colleagues, Malcolm Barr and Bruce Kasman, suggests that with tweaks to reserve management the ECB could ultimately go as low as minus 4.5 percent.

That would bring the ECB close to the furthest below zero that any major central bank has ever gone, and potentially raise questions about whether such a level could be implemented without lenders coming to the conclusion that it would simply be better to bunker their banknotes.

Switzerland and Denmark have implemented a lower rate, minus 0.75 per cent. While there's little evidence of cash hoarding there, it's not clear how such a policy would play out in the euro area. The lower it goes, the more officials may have to think about curbing the use of cash or face their policy being subverted by hoarding.

While some officials, in particular Bank of England Chief Economist Andy Haldane, have thought out loud about how a reduction in cash use could enable lower policy rates, few officials have dared make public proposals. The backlash against the German idea for an upper limit on cash transactions this week is an indicator of how far away a cashless society in the euro area might be.

An ECB spokesman declined to comment further on its plans regarding high-denomination bills. Nevertheless, Draghi signaled on Feb. 1 that a change is coming.

"There are questions on how best to implement a decision, and how to communicate this," he said at the European Parliament in Strasbourg. "We want to make changes, but we want to make changes in an orderly fashion." So at the same time as it responds to concerns about the high value note fueling criminality, the ECB could also help give itself the maximum possible policy room, according to Ben May, senior European economist at Oxford Economics in London.

"If you are wanting to hoard money for legitimate or illegitimate reasons, then the 500 note is very attractive," May said. "At minus 0.75 per cent, there must be an element of doubt that people will turn around and hoard cash. If there were more stringent limits the lower bound could be pushed much lower."

BLOOMBERG

    
 

The solar company Elon Musk cofounded is getting obliterated

• Linette Lopez
 
•   

• 17h
• 10,291
 
• 4

Thomson ReutersLyndon Rive, SolarCity co-founder and CEO, attends SolarCity's Inside Energy Summit in Manhattan, New York

SolarCity — a residential solar energy company — is crashing in after-hours trading after posting weak guidance for Q1 and a greater than expected Q4 loss of $2.37 per share during its earnings announcement.

From the announcement [emphasis ours]:

"For Q1 2016, we also expect GAAP Operating Expenses of $230 million – $240 million (including between $30 million and $32 million in non-cash amortization of intangibles and stock compensation expense) and Non-GAAP Loss Per Share (before Income (Loss) Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests)* between ($2.55) – ($2.65)...

The stock is down 32% in after hours trading.

"For Q1 2016 we expect to install 180 MW, representing growth of 18% year-over-year, and a 34% decline as compared to Q4 2015. This represents a higher-than-usual seasonal slowdown that we have historically experienced after strong fourth quarters largely owing to two reasons," said the earnings report.

On the call following the earnings announcement, CEO Lyndon Rive said that the "two reasons" for weaker guidance were due construction delays and regulation in the state of Nevada that prompted some solar players in the state, including SolarCity, to halt construction. Last month the company announced that it would layoff 550 people in the state.

Rive said that he thinks that regulation will be overturned, and believes the policy environment on a global scale is very positive.

He also said that his company would grow 40% in 2016 and be cash flow positive by Q4. How? Mostly through cost cutting. Also by investing in sales in marketing, according to Rive. 

Asked more specifically about how the company would make up for lost business in Nevada, the company's new CFO Tanguy Serra passed — saying that he was just getting into the flow of creating guidance for the company. He skipped a quarter of guidance for the company, for example.

"My bad," he told an analyst.

Last summer

You may remember SolarCity for two reasons:

1. Billionaire Elon Musk is a cofounder of SolarCity, and the largest shareholder in the company.
2. Musk loaded up on the stock back in August, after Kynikos Associates founder Jim Chanos said he was shorting the company.

Chanos explained his position to CNBC, saying that SolarCity's business model was much like subprime housing, where the value of the asset — in this case solar panels on a house — decreases while consumers have to pay the same price.

"SolarCity is really a subprime financing company in effect. You basically lease the panels from SolarCity. They put them on your house and they collect the lease payments. So in effect, if you put on the panels you have a second mortgage on your home because you hope it's an asset, but in many cases it turns into a liability," Chanos said.

Lyndon Rive, the company's CEO, said that was "the first he'd ever heard" of Chanos. After the initial hit from Chanos, the company's stock got a slight bump after a $100 million investment from Silver Lake, a private equity firm.

So far in 2016 the stock is down 48%.

Yahoo FinanceSolarCity YTD

NOW WATCH: Here’s how Shark Tank’s Daymond John beats out the other Sharks to score a deal

More: SolarCity Solar Elon Musk

Disney crushes earnings expectations thanks to Star Wars but ESPN profits decline, shares drop

• Akin Oyedele
 

• 1h
• 2,796
 
• 2

© 2014 Lucasfilm Ltd. & TM

Disney reported its best quarterly earnings ever on Tuesday, driven by the success of "Star Wars: The Force Awakens."

The operating income in its studio entertainment segment surged 86% to $1 billion dollars.

However, earnings from cable networks, which had been the focus of investors due to struggles at ESPN, declined 5%. 

In after-hours trading Tuesday, shares of the company were down as much as 5%, and were down 3% pre-market on Wednesday.

The company posted $1.63 in adjusted earnings per share (EPS) for the first fiscal quarter. Revenue grew 14% to $15.2 billion. 

Analysts had expected adjusted EPS of $1.45 and revenues of $14.73, according to Bloomberg. 

Disney shares have fallen 9% over the last 12 months. They dropped sharply last August as investors got more concerned that the decline in cable subscriptions was hurting Disney's media business. 

Disney's operating income from cable networks fell 5% to $1.2 billion, as ESPN continued to lose subscribers. The company said the drop was due to higher programming costs for NFL and college football games, even though advertising and affiliate revenues increased.  

During the earnings call, CEO Bob Iger said Disney was talking to distribution partners about light packages that would take advantage of shifting consumer trends. 

The new year celebrations helped boost revenues at Disney's parks and resorts, which rose 9% to $4.3 billion compared to the same quarter in the prior year. The company added that higher labor costs and new services for guests increased costs in this segment. 

This chart shows the after-hours drop:

Google

SEE ALSO: Viacom crashed

The global market for negative debt has gone from zero to $6 trillion in less than two years

• Will Martin
 

• 23h
• 557

Reuters

The market for negative-yielding bonds is now worth around $6 trillion, and has doubled in just over a month, showing just how worried how investors across the globe are about the state of the world's economy.

According to data from JP Morgan, over 25% of all sovereign debt tracked by its GBI Broad Index, an index of 27 major issuers, is now in negative territory.

Negative-yielding sovereign debt has emerged as a huge part of the bond market in the past year and a half, exploding from zero in August 2014, to $6 trillion of the $23 trillion tracked by JP Morgan, as of February 8th.

At the start of January, just $2 trillion of bonds yielded less than zero, but the amount of has since soared. 

By their very nature, negative bonds guarantee a loss, meaning that investors will only buy them if they're scared of putting their money elsewhere. They imply that risk elsewhere is even worse than a bond that is guaranteed to lose a predictable amount of money. Global assets are incredibly volatile at the minute.

Oil is yo-yo-ing almost every day, equities across the globe are getting slammed, and money is pouring out of China as fears about the country's economy grow. This means that debt in safe markets — largely big, stable economies — has become increasing attractive, pushing prices for bonds upwards, and yields lower.

This, in turn, has helped to push more and more debt into negative territory. Here's the chart, showing the rise to $6 trillion:

JP Morgan

A growing number of major economies are now issuing negative debt, although it is largely being led by European countries. Countries with record low yields right now include Sweden, Germany, the Netherlands, Belgium, Finland, Austria, and France. This is backed up by the fact that more than a third of euro area government debt is now in negative territory.

The most recent entry into the negative debt market is Japan, which moved to take interest rates below zero less than two weeks ago. The Bank of Japan's executive board voted to take rates down to -0.1% on January 29th, shocking the global markets. The move contributed to a sharp decline in bond yields in the country, which have fallen from 0.22% at the time rates went negative, to just below zero this morning.

On Monday, HSBC released a note about the negative interest rate policy implemented by Sweden, which has now been in place for just over a year. The verdict is not good for the Swedish economy. As Business Insider's Ben Moshinsky pointed out, the policy, designed to increase inflation, and to stop Sweden's swelling property bubble, has pretty much failed, with inflation staying at a meagre 0.1%.

NOW WATCH: JEFF SACHS: This is the biggest threat to the human race

More: negative Bond Yields Japan JP Morgan