Trump's Win Is Asia's Economic Loss If Trade Barriers Rise
By David Roman and Enda Curran | Bloomberg – 2 hours 46 minutes ago Wednesday, November 9, 2016
- ricky l 0 seconds ago
Bets on Trump loosening purse strings spark global reflation trades
- Posted 11 Nov 2016 01:15
LONDON: From construction companies in Spain to copper traders in London's financial district, Donald Trump's victory in the U.S. presidential election is being felt around the world as investors bet on a lasting rise in global inflation.
If Trump delivers on his pledge to give the U.S. economy a growth and inflationary shot in the arm from a multi-trillion-dollar package of tax cuts and infrastructure spending, the impact will likely be felt far beyond American borders.
Analysts at M&G Investments this week went as far to ponder whether his election victory had triggered "the end of global austerity".
Inflation has slumped to historic lows since the financial crisis, and much of the developed world has been battling deflation. A significant rise in inflation, or reflation - if it comes - would mark a sea change for markets.
The U.S. economy is the world's largest, so inflationary moves there will be felt elsewhere. Investors are also betting that American fiscal stimulus will be replicated to varying degrees in Europe and Asia, thereby magnifying the effect.
They are now trying to pick out the biggest winners from rising prices, across geographical regions, asset classes and industries.
Much of their focus is centering on government bonds, base metals like copper and steel, and companies related to resources and construction - areas most sensitive to sharp moves in inflation and infrastructure spending.
"At its core Mr Trump's offering is reflation," Nomura's asset allocation and foreign exchange strategy teams said on Thursday, adding that rising prices and market interest rates in the United States needed to be accompanied by a rise in real economic growth.
"That price discovery process on domestic reflation will take a long time to determine," they said.
In the meantime though, they recommend buying the dollar against the euro, Japanese yen and Canadian dollar because the anticipated inflationary impulse could force the U.S. Federal Reserve to raise interest rates next year faster than currently expected.
DOLLAR, BONDS
Nomura expects the dollar to rise to 110 yen within three months from 106.75 currently, to climb to CUS$1.40 from US$1.34 and the euro to fall to US$1.05 from US$1.09 .
A similar view is held by Michael Hasenstab, chief investment officer of the Templeton Global Macro fund who made his name with bets on Irish and Hungarian bonds among others.
"We continue to expect rising inflation in the United States, rising U.S. Treasury yields, depreciations of the Japanese yen and euro, and currency appreciations across a select set of emerging markets," he said.
U.S. inflation expectations as measured by five-year inflation swap contracts jumped in the wake of Trump's victory to 2.38 percent on Wednesday - the highest level since July last year - from 2.24 percent the day before.
Long-dated Treasury yields have leapt too in anticipation that tighter monetary policy will be needed to cool these inflationary pressures, with the 10 and 30-year yields hitting their highest levels since January .
The rise in the 30-year yield, in particular, has been remarkable. It is up more than 30 basis points this week, on course for its biggest weekly rise since 2009 and among the biggest of the last three decades.
This has led to a so-called "steepening" of the yield curve, where the gap between short and longer-dated yields widens. Flattening curves often indicate a weaker outlook for growth and inflation, while steeper curves suggest the opposite.
The seismic moves aren't exclusive to the U.S. bond and inflation markets. Bonds across the developed world have been on a near-uninterrupted bull run for 35 years, and some analysts say this year is the turning point.
Euro zone inflation expectations as measured by five-year inflation swap rates posted their biggest rise since August last year on Thursday, and the 30-year German yield surged almost 20 basis points. .
CONSTRUCTION, METALS
These shifts across global interest rate markets in response to the changing inflation outlook are being mirrored in commodity and equity markets too.
Bank of America Merrill Lynch on Thursday reiterated its "overweight" position on the European basic resources and oil sectors, areas where investors are still "underweight".
Copper surged more than 5 percent to a 16-month high of US$5,714 a ton on Thursday . Nickel also hit its highest since July 2015 and zinc rose to a 5-1/2 year peak .
This is already filtering into related sectors and companies across global equity markets. Shares in the world's largest steelmaker ArcelorMital rose more than 10 percent on Thursday.
The steel sector is poised to continue in the same vein, says Barclays, especially if China responds to Trump's U.S.-focused largesse with a fiscal stimulus of its own to lift its domestic economy.
"The outcome of the U.S. elections is a positive surprise for steel equities. Mr. Trump aims to boost infrastructure spending and tighten trade protection, further supporting the local steel sector," Barclays added.
Europe's constructions and materials index hit a nine-year high on Thursday .
Shares in Spanish construction conglomerate ACS , which does business around the world, rose more than 5 percent on Wednesday, the biggest rise since February. They are up 10 percent so far this week.
Irish construction firm CRH , which derives half of its revenues from the United States, hit a nine-year high on Thursday, at 34.40 euros. That was within a whisker of its all-time peak of 34.56 euros.
(Additional reporting by Alistair Smout; Editing by Pravin Char)
- Reuters
Ex-President George W. Bush dips toe into US trade debate
- Posted 21 Sep 2016 04:45
DALLAS: Former U.S. President George W. Bush on Tuesday entered the debate over the Trans-Pacific Partnership, hosting a forum at his presidential library extolling his successor's Asian free trade deal.Bush, who signed several such accords during his two terms in office, met with U.S. Trade Representative Michael Froman before the event to promote the strategic benefits of the agreement.President Barack Obama is still pushing for Congress to approve the 12-country TPP following the Nov. 8 presidential election, even though both Republican Donald Trump and Democrat Hillary Clinton oppose it.Bush, who has largely stayed out of the campaign - in which Trump's anti-trade rhetoric fueled his rise to the Republican nomination - did not attend the forum at the George W. Bush Institute in Dallas."I'm very grateful for him welcoming me to this institute and having the institute host this important conversation," Froman told the audience of largely business people after his meeting with Bush. "And I'm very grateful for his support of free trade as well."Ken Hersh, director of the Bush Institute, called TPP "a no-brainer on a whole host of fronts."The forum followed a similar event on Monday night in Houston where Froman enlisted the help of another Republican free-trader, James Baker, who served the administrations of Ronald Reagan and George H.W. Bush as secretary of the Treasury and secretary of state, respectively."Both major party candidates for the presidency oppose the Trans-Pacific Partnership, or TPP. And guess what? They're both wrong," Baker, 86, said at the Rice University institute that bears his name."I've often found myself in disagreement with President Obama. But on TPP I am with him, and I am with him 100 percent," Baker added.In a speech at the Houston event, Froman emphasized the need for TPP as a counterbalance to China's growing economic and political influence in Asia, citing its own regional trade deal and more assertive stance in the South China Sea."If we don't act, it will create a vacuum. These economies aren't going to stand still. Beijing will step in to fill the void," Froman said.At the Bush Institute, Susan Schwab, who served as George W. Bush's last trade representative, said failure to pass TPP would mark an abdication of U.S. leadership."There are countries out there that would dearly love to see the United States fall on its face by not enacting, by not ratifying this deal," she said.(Reporting by David Lawder; Editing by Dan Grebler)- ReutersTrump fear fans dollar rally as emerging markets sink
- Posted 11 Nov 2016 17:06
- Updated 11 Nov 2016 18:37
The dollar almost hit 107 yen for the first time since July in US trade and it maintained most of the gains in Asia, sitting at 106.62 yen on November 11, 2016, well up from the 101.20 yen touched in the initial panic of Donald Trump's win AFP/Behrouz Mehri· ENLARGE· CAPTION·· 0·o Ao AHONG KONG: The dollar soared against high-yielding currencies and Asian emerging markets sank Friday (Nov 11) on the prospect of higher US interest rates, with dealers betting Donald Trump's planned huge spending policies will fire inflation.Despite an all-time high close on Wall Street, investors across Asia turned cautious on uncertainties linked to a Trump presidency, while the Mexican peso fell back towards record lows on worries about the firebrand tycoon's anti-Mexico stance.After an initial shock, global equities rocketed on news Trump had beaten Hillary Clinton, with investors hoping for business-friendly policies and measures to boost the US economy, a key driver of world growth.However, there are worries about his plans after saying he will tear up several trade deals while ramping up import duties which would stoke inflation.And expectations that Trump's plans for huge spending projects will also fan prices have lit a fire under the dollar as dealers bet the Federal Reserve will hike borrowing costs more aggressively to cap inflation.That in turn has led to fears of large capital outflows from the region as investors go back to the US for better, safer returns.The greenback almost hit 107 yen for the first time since July in US trade and it maintained most of the gains in Asia, sitting at 106.90 yen - well up from the 101.20 yen touched in the initial panic of Trump's win.It also surged against the high-yielding units as dealers worry about Trump's protectionist plans. The Indonesian rupiah plunged more than five percent at one point before halving those losses, Australia's dollar was down 1.7 per cent and Malaysia's ringgit lost 2.6 per cent.INFLATIONARY POLICIESThe South Korean won was 1.2 per cent lower after the country's central bank held interest rates at record lows and warned of headwinds caused by global uncertainty. And China weakened its yuan reference rate to beyond 6.8 against the dollar for the first time in more than six years, with analysts warning the unit could drop further.The dollar was also up 2.9 per cent at 20.70 Mexican pesos, close to its all-time highs.The unit - as well as the Mexican stock market - has been hammered by fears Trump will follow through on campaign pledges to renegotiate the North American Free Trade Agreement, as well as pressure the country to pay billions of dollars for a giant border wall."The dollar is up against most major currencies supported by an upward revision to US interest expectations and focus on President-elect Donald Trump's pro-growth and inflationary economic policies," Elias Haddad, a senior currency strategist at Commonwealth Bank of Australia, told Bloomberg News."Trump's economic policies will force the Fed to raise the funds rate at a faster pace than otherwise, which is dollar bullish."On equities markets, skittish investors sent Hong Kong 1.4 per cent lower and Seoul 0.9 per cent down, while emerging market shares were battered.Taipei dived 2.1 per cent while Manila and Jakarta were each down almost 3 per cent.But Japan's Nikkei ended up 0.2 per cent as the weaker yen boosted exporters, although it was down from earlier highs, while Shanghai and Sydney both put on 0.8 per cent.In early European trade London and Paris each rose 0.3 per cent and Frankfurt added 0.7 per cent.KEY FIGURES AROUND 0800 GMTTokyo - Nikkei 225: UP 0.2 per cent at 17,374.79 (close)Hong Kong - Hang Seng: DOWN 1.4 per cent at 22,531.09 (close)Shanghai - Composite: UP 0.8 per cent at 3,196.04 (close)London - FTSE 100: UP 0.3 per cent at 6,845.52Dollar/yen: DOWN at 106.90 yen from 106.84 yen ThursdayEuro/dollar: UP at US$1.0900 from US$1.0895Pound/dollar: UP at US$1.2560 from US$1.2552Dollar/Mexican peso: UP at 20.70 pesos from 19.63 pesosOil - West Texas Intermediate: DOWN 22 cents at US$44.44 per barrelOil - Brent North Sea: DOWN 19 cents at US$45.65New York - Dow: UP 1.2 per cent at 18,807.88 (close)- AFP/ek
US multinationals eye foreign profits tax break with Trump win
- Posted 11 Nov 2016 07:10
- Updated 11 Nov 2016 15:05
WASHINGTON: Donald Trump's White House victory moves Apple , Pfizer , Microsoft and other big U.S. corporations much closer than they have been in years to winning a big tax break on US$2.6 trillion in foreign profits.Tax reform is shaping up as among the most fruitful areas for cooperation between Trump and his fellow Republicans, who held control in Tuesday's elections of both the House of Representatives and the Senate.Trump and congressional Republicans have separate, but similar, tax reform plans. Both would slash tax rates on businesses, simplify and cut individual taxes, and let companies bring overseas profits into the country at a low tax rate, raising prospects for a sweeping deal on taxes.Bipartisan support for corporate tax reform has been growing as multinational companies have amassed tax-deferred profits abroad and brought continuous lobbying pressure over a decade for a tax break on them."On tax policy, he's basically adopted the House blueprint as his approach," said Rohit Kumar, co-leader of the tax policy services practice at Big Four accounting firm PricewaterhouseCoopers ."There's a better chance that something happens next year than there has been at any point in the last several years."At the heart of the issue is a law that lets U.S. companies hold foreign profits overseas without paying U.S. corporate tax on them, unless and until those profits are brought into the United States, which is known as repatriation.Corporations have US$2.6 trillion stashed abroad under this law. That money could be repatriated any time, but businesses choose not to because it would incur the 35 percent statutory corporate income tax.Trump and House Republicans, including Speaker Paul Ryan, would still need to agree on how to pay for lower corporate tax rates and on whether U.S.-based multinationals should pay U.S. taxes on future foreign profits.Trump and congressional Republicans would also need support for tax reform from Democrats if they intend to present the package as a benefit for the country as a whole, analysts say.Such proposals have stumbled before on Democrats' objections that they are corporate give-away, and on Republicans' insistence that they be paired with a cut in the corporate income tax rate.Democrats could still block legislation they dislike from reaching the floor of the Senate, which requires a super majority of 60 votes to advance a measure, but there are procedural maneuvers Republicans could use to bypass them.The one-time surge in revenue that would result from repatriation could help fund another cornerstone of Trump's campaign platform - a pledge to boost the economy through big investments in U.S. highways, roads, bridges, airports and seaports.Infrastructure spending was not a campaign priority for congressional Republicans. But a new job-creating program could appeal to Democrats and be valuable to lawmakers in the 2018 mid-term elections.The four companies with the largest profits held overseas are: Apple Inc (US$200 billion), Pfizer Inc (US$194 billion), Microsoft Corp (US$108 billion) and General Electric Co (US$104 billion), according to March estimates by Citizens for Tax Justice, a corporate income tax watchdog group in Washington. (Graphic: http://tmsnrt.rs/2eBx2BO).The European Commission in August hit Apple with a 13 billion euro (US$14.3 billion) bill for back taxes, fanning concerns among other U.S. multinationals and U.S. officials that their untaxed foreign revenues could be vulnerable to further European penalties.Apple CEO Tim Cook told an interviewer in September that he expects to repatriate billions of dollars in global profits to the United States in 2017 but did not say how. He said in another interview that the company would not bring money back unless there was "a fair rate" and said he was optimistic that tax reform would occur next year.BUSINESS SUPPORTThe House tax plan, which Ryan and other leading Republicans promoted throughout the campaign, would lower the corporate tax rate from 35 percent to 20 percent, force multinationals to repatriate existing foreign earnings and adopt a "territorial" system that would largely end taxation of U.S. companies' foreign income.Trump is calling for a steeper rate cut to 15 percent, and he has proposed a 10 percent tax rate for repatriated overseas profits held in cash, payable over a decade.Some are optimistic that those differences can be overcome."In the end, there are no differences that can't be solved on the tax issue," said Republican Representative Tom Cole.The House Republican plan has had significant support from business.Kumar's PwC advises the Alliance for Competitive Taxation, which lobbies on tax reform for over 40 companies ranging from Alcoa Inc and Cisco Systems Inc to Alphabet's Google Inc , Procter & Gamble Co and Wal-Mart Stores Inc ."We know what we want," said Dorothy Coleman, a tax policy expert at the National Association of Manufacturers, referring to a lower corporate tax rate, adopting a "modern, competitive" territorial system, and a permanent R&D credit among other wishes.The House's corporate tax plan would cut revenues by more than US$890 billion over 10 years, according to the nonpartisan Tax Policy Center. The same research group says Trump's corporate plan would reduce revenues by US$2.6 trillion.Trump and Republicans in Congress view tax reform as a way to jump-start economic growth and job creation.Business lobbyists say that higher tax revenues from a growing economy would address much of the House plan's shortfall. Trump advisers say revenue erosion posed by the president-elect's plan would be overcome by growth and policy initiatives including a more aggressive approach to trade.(Additional reporting by Susan Cornwell; Editing by Kevin Drawbaugh and Stuart Grudgings)- Reuters- Posted 11 Nov 2016 17:06
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