Wednesday, August 31, 2016

UPDATE 1-Canada applies to join China-backed AIIB, latest U.S. ally to apply

FINANCIALS | Wed Aug 31, 2016 4:33am EDT

UPDATE 1-Canada applies to join China-backed AIIB, latest U.S. ally to apply

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By Yawen Chen and Sue-Lin Wong

Aug 31 Canada will apply to join the China-backed Asian Infrastructure Investment Bank (AIIB), the bank's president Jin Liqun said on Wednesday, making it the latest ally of the United States to join the new international development bank.

The multilateral institution, seen as a rival to the Western-dominated World Bank and Asian Development Bank, was initially opposed by the United States but attracted many U.S. allies including Britain, Germany, Australia and South Korea as founding members.

Japan and the United States are the most prominent nations not represented in the bank. The United States said in April it is not presently considering an investment in the AIIB.

"This is really for us, as a new government, the earliest possibility at which we could indicate our interest," Canadian finance minister Bill Morneau said in response to a question asking why Canada was only applying to join the bank now.

"We believe the bank is clearly showing that it's going to be a highly effective multilateral institution," he added.

Morneau is on a trip to China with Canadian Prime Minister Justin Trudeau seeking to deeper ties with the world's second-largest economy, a distinct change from his predecessor Stephen Harper who was more cautious in his approach to China.

"The Canadians' decision to join this bank will greatly strengthen the management of this institution," Jin told reporters.

"We can see that the U.S.'s attitude towards AIIB is showing signs of changing, as it's encouraging the World Bank to cooperate more with the AIIB," Jin added.

Canada will submit its application to join the AIIB by the end of 2016, said David Lauzon, a Canadian finance ministry official said.

(Reporting by Yawen Chen and Sue-Lin Wong; Writing by Sue-Lin Wong; Editing by Simon Cameron-Moore)

Tuesday, August 30, 2016

The government just announced some big changes to try to fix Obamacare

Bob Bryan

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US President Barack Obama with doctors at the White House in 2009.Win McNamee/Getty Images

The government is offering some ideas to try to fix the Affordable Care Act, the healthcare law known as Obamacare, amid a series of missteps that have befallen President Barack Obama's signature legislative achievement.

With Obamacare having being dogged by negative news over the past few weeks — as major insurers have pulled out of some public exchanges and regulators have said the exchanges are "near collapse" — the US Centers for Medicare and Medicaid Services, or CMS, proposed a series of changes on Monday to try to correct some of the exchange issues.

CMS, the division of the US Department of Health and Human Services that oversees the exchanges, proposed tweaks that would make it less risky for insurers in the marketplace to take on sick patients.

Two of the biggest problems for the exchanges have been a lack of young people, who help offset higher-cost patients, signing up for insurance and generally sicker-than-expected people getting coverage through the exchanges, leading to huge losses for some insurers.

A few of the 14 total proposals include:

Using some of the fees from the federally funded marketplace for outreach to get more young people to sign up.
Strengthening rules for signing up for insurance outside the open-enrollment period to ensure that people are not waiting until they are sick to get coverage.
Take prescription-drug use into account when evaluating the risk profile of potential patients. Previously, this had not been taken into account, and insurers argued that it prevented them from getting a full picture of possible patients' health status.
Creating more flexibility for insurers in their bronze plan offerings to reduce cost burdens.

Kevin Counihan, the insurance marketplace CEO at the CMS, said the proposed changes would fix numerous issues with the exchanges.

"These proposed actions and others we have taken over the last six months would help to: support issuers with high-cost enrollees, while updating risk adjustment; strengthen the risk pool; promote additional enrollment; and support issuers in entering the Marketplace or growing their Marketplace business," Counihan wrote in a post summarizing the proposals.

All of these changes serve as attempts to make it more economically sound for insurance companies to be in the market, to get more people into the exchanges (roughly 10% of Americans are still uncovered), and to eliminate loopholes that allow people to game the exchanges.

The public exchanges are just part of the ACA, representing only 6% of health-insurance coverage nationwide. But, as one of the signature parts of the law, their survival is a huge deal to the long-term future of the ACA.

Comments on the proposals close on October 6.

Check out the full blog post from the CMS on the changes here »

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Gold is doing something it's only done twice in the past decade

Akin Oyedele

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REUTERS/Michaela Rehle

Gold may be worth more than what traders have decided is the spot price.

There's a correlation between gold price changes and the rate at which central banks bought assets to expand their balance sheets, according to Deutsche Bank's Michael Hsueh and Grant Sporre.

And the pace of balance-sheet expansion — by 300% since 2005, according to the analysts — indicates that gold could be worth more.

They wrote in a note on Friday:

"Let us be clear; we are not saying that gold will trade up to USD1,700/oz in the near term, but when viewed against the aggregated balance sheet of the 'big four' global central banks (the Fed, ECB, BoJ and PBoC) the argument can be made if we view gold as a currency, the metal is worth closer to USD1,700/oz, versus the spot price of USD1,326/oz."

Deutsche Bank

To be sure, this isn't an argument for gold as a currency, and there are arguments against that notion. For one, gold isn't a legal tender that's widely paid or received in exchange for goods and services, partly because it's not as easy to print or transport as paper cash.

But the argument that Hsueh and Sporre make is that gold price percentage changes have historically moved in tandem with the rate of central bank balance-sheet expansions, but gold is not keeping up right now:

"Over the same period [2005 till now] as the aggregate central bank balance sheet expanded by 300%, global above ground stocks grew by 19% in tonnage terms or c.200% in value terms. If we were to assume that the value of gold should appreciate to keep the overall value of the big four aggregate balance sheet equivalent to that of the value of the above ground gold stocks, then gold should be trading closer to USD1,700/oz."

There were only two times in the past decade when this relationship broke down, they wrote.

The first was during the Great Recession, when central banks sold their gold reserves to meet liquidity requirements. The other time was in 2013, when the Federal Reserve signaled that it was winding down its massive quantitative-easing program involving asset purchases.

"As long as the central banks' balance sheets continue to expand, the gold price should maintain some momentum," the wrote. "The rate of gold price appreciation is however likely to slow, given that the momentum so far this year has outpaced that of the central bank expansion."

On Monday, gold futures traded down 0.21%, or $2.75 an ounce, to $1,325.15.

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More: Gold Central Banks

BREXIT FALLOUT: The number of British people getting mortgages has fallen off a cliff

Will Martin

REUTERS/China Daily

The number of mortgages given out in the UK fell to its lowest level in more than 18 months in July as the economic impact of the country's decision to leave the European Union began to hit the consumer lending market.

According to the latest figures released by the Bank of England as part of its July Money and Credit surveys, the total number of new mortgages given out in July was 60,912, down more than 3,000 from May, when 64,152 mortgages were approved.

Not only did July's reading mark a substantial fall from the previous reading, but it was also well below the 61,900 approvals that had been forecast by economists in the lead up to the release. July's reading is also an 18-month low, dropping to a level not seen since January 2015.

Here is the BoE's chart showing July's substantial drop:

Bank of England

The British property industry is widely expected to be one of the worst hit sectors in the wake of the referendum decision, with housebuilding stocks falling sharply, and predictions about a big fall in UK house prices widespread. Last week, for example, estate agent group Countrywide warned that property prices across the country will fall by 1% in 2017 as a result of Brexit.

As Business Insider's Lianna Brinded pointed out at the time: A 1% drop may not seem like a big deal, but considering house prices have continually increased for the past few years, a sudden switch to a negative reading is alarming. It is completely turning the house price trajectory upside down."

It should be noted that the data released on Tuesday was compiled prior to the Bank of England's interest rate cut and the announcement of new measures designed to ensure that banks continue lending to the British public despite the expected downturn in the British economy in the aftermath of referendum.

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More: Bank of England Mortgages UK Housing Market Brexit

Japanese unemployment has fallen to a 21-year low

David Scutt, Business Insider Australia

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New recruits listen to speeches during the welcome ceremony for new employees of All Nippon Airways Holdings (ANA) at ANA hanger on April 1, 2015 in Tokyo, Japan. Chris McGrath/Getty Images

Japan’s unemployment rate now sits at the lowest level seen in over 21 years.

According to the Ministry of Internal Affairs and Communications, the unemployment rate fell to 3.0% last month in seasonally adjusted terms, down on the 3.1% level of June and expectations for an unchanged reading in July.

It was the the lowest level since May 1995.

Suggesting that labour market conditions continue to tighten, the nation’s job to applicants ratio held steady at 1.37, a figure which is derived by dividing the number of monthly job openings by the number of job applicants.

Put another way, for every 100 job seekers in July, there were approximately 137 positions available.

While slightly below expectations for an increase to 1.38, the figure was the highest level seen since August 1991, and unchanged from the level seen in June.

Despite the obvious tightening in labour market conditions seen in recent years, wage inflation — craved by Japanese policymakers who are attempting to lift the nation out of a deflationary cycle that has been ongoing since the early 1990s — remains elusive.

Japanese unemployment July 2016 Business Insider Australia

In a research note released prior to the data’s release, Nara Song and Peter Eadon-Clarke, analysts at Macquarie Research, suggested that there is a simple explanation as to why wages for employees are not rising more rapidly: though low compared to other advanced nations, the headline unemployment rate is not particularly low based on historical standards and there is a reservoir of discouraged workers and those wishing to work full time but currently in part-time jobs.

There’s still an abundance of labour market slack, in other words, and that’s helping to keep a lid on wage growth despite tightening labour market conditions as a result of aging demographics.

Released alongside the labour market data, household spending and retail sales figures for July also outperformed, although both remained entrenched in negative territory.

Compared to a year earlier, household spending fell by 0.5%, an improvement on the 2.2% contraction seen in June and expectations for a lift to -0.9%.

Despite the beat, spending in annualised terms has now fallen for five consecutive months.

Pedestrians wait to cross the road at Japan's famous Shibuya crossing on October 15, 2015 in Tokyo, Japan.Chris McGrath/Getty Images

Retail sales also topped forecasts, contracting 0.2% in the year to July following a 1.4% decline in July. Markets had been expecting a decrease of 0.9%.

While a mixed report card on the state of the Japanese economy, inflation, and to a secondary degree economic growth, remains the only game in town when it comes to the outlook for monetary policy settings from the Bank of Japan.

In data released last week, Japanese core consumer price inflation (CPI) — that which excludes fresh food prices — fell by 0.5% in the year to July, the largest year-on-year decrease since March 2013.

So-called core-core inflation — that which strips out price movements for food and energy and is more akin to core CPI measures used in other advanced economies — rose by 0.3% over the same period, below the 0.4% increase seen in June.

Given both figures remain well below the medium-term 2% inflation rate targeted by the Bank of Japan, there are now widespread expectations that the BOJ will announce a significant increase in monetary policy stimulus at the conclusion of its next meeting on September 21.

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More: BI Australia Market Japan Unemployment Rate

Saudi central bank's foreign assets drop by $6 billion in July

BUSINESS NEWS | Sun Aug 28, 2016 10:17am EDT

Saudi central bank's foreign assets drop by $6 billion in July

Net foreign assets at Saudi Arabia's central bank fell to $555 billion in July, down $6 billion from the previous month, as the government drew on reserves to cover a budget deficit caused by low oil prices, official data showed on Sunday.

Assets shrank by 16 percent from a year earlier to their lowest level since February 2012. They reached a record high of $737 billion in August 2014 before starting to fall.

The assets are believed to be mainly denominated in U.S. dollars, in the form of securities such as U.S. Treasury bonds and deposits with banks abroad.

Those deposits fell by $8 billion from the previous month to $125 billion in July, but holdings of foreign securities rose by $2 billion to $371 billion after shrinking for 10 straight months. The central bank did not disclose details of its securities purchases.

The government has also been borrowing domestically and abroad to cover part of its deficit, which totaled nearly $100 billion last year.

Bankers expect it to conduct its first international bond issue to raise about $10 billion or more by the end of October.

(Reporting by Andrew Torchia; Editing by David Goodman)

Wednesday, August 31, 2016