China will not change prudent monetary policy: Premier Li

BEIJING (Reuters) – China has not and will not change its prudent monetary policy and will not resort to “flood-like” stimulus, Premier Li Keqiang said on Wednesday.

Market speculation is growing over whether authorities will take more aggressive policy steps after recent weak data.

“I reiterate that the prudent monetary policy has not changed and will not change. We are determined not to engage in ‘flood-like’ stimulus,” Li said at a cabinet meeting, according to a statement on the government’s website.

A cut in banks’ reserve requirement ratio (RRR) in January reflected ample room for such reductions, Li said.

China slashed RRR by 100 basis points in January – its fifth cut in the past year – as it looks to reduce the risk of a sharper slowdown in the world’s second-biggest economy. Further reductions are widely expected.

China’s banks doled out a record 3.23 trillion yuan ($480.43 billion) in new loans in January while several other key credit gauges also picked up modestly that month in response to recent policy easing steps.

Rising bill financing and short-term loans could lead to “arbitrage” activities and create potential risks, he added.

Financial institutions should offer more credit, especially medium- and long-term loans to small firms, he said.

Li also said the government needed to deepen reform to resolve long-term problems in the economy.

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Qatar Petroleum signs initial deals to boost local energy industry

DOHA (Reuters) – Qatar Petroleum signed preliminary deals worth more than 9 billion Qatari riyals ($2.47 billion) on Monday with oil services firms Schlumberger and Baker Hughes to boost the local energy industry.

Qatar, the world’s top liquefied natural gas (LNG) exporter which is facing a trade boycott by some Arab states, wants to reduce reliance on imports and lift domestic production.

“As part of our national duty to develop the industry in Qatar and to promote self-reliance, we saw the need to localize many of the supporting industries in the sector,” QP Chief Executive Officer Saad al-Kaabi said at an event to sign memorandums of understanding with Schlumberger and Baker Hughes.

The preliminary agreements would involve investment in production facilities, training and development, Kaabi said.

Another oil services firm McDermott signed a joint venture deal with Qatar’s energy shipping and transport firm Naqilat to build maritime platforms for offshore and onshore structures, Kaabi said, without giving a value.

Qatar expected to save about 9 billion riyals a year through import substitution after building up its local energy industry, Kaabi, without giving a target date.

Qatar aims to boost its annual LNG output by 43 percent by 2023/24 to 110 million tonnes per year from 77 million now.

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Japan's GDP rebounds from quake, floods but trade war hangs over 2019

TOKYO (Reuters) – Japan’s economy bounced back in the fourth quarter as business and consumer spending recovered from the impact of natural disasters but trade frictions and a proposed sales tax hike are expected to hinder growth in 2019.

The 1.4 percent annualised expansion in October-December matched the median estimate in a Reuters poll. It also followed an upwardly revised 2.6 percent annualised contraction in July-September as floods and an earthquake temporarily halted production.

Real exports rose 0.9 percent in October-December from the previous quarter, the data from the Cabinet Office showed, the fastest growth in a year.

Despite the increase in shipments, economists remain concerned that exports will weaken this year if the United States and China do not resolve their trade dispute.

“The numbers have rebounded, but Japan is still an economy that is losing momentum,” said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities.

“The longer trade friction lasts, the more incentive Japanese companies have to halt capex. Trade friction means weaker exports. Japan’s overall growth this year won’t be as quick as last year or the year prior.”

GDP rose 0.3 percent versus the previous quarter, slightly less than the median estimate for 0.4 percent growth. That followed a downwardly revised 0.7 percent contraction in July-September.

In September a large earthquake triggered a blackout in the northern island of Hokkaido, which followed severe typhoons that damaged airports and transport infrastructure in western Japan.

Businesses were quick to resume normal operations after these disasters.

Capital expenditure was the biggest driver of growth in October-December, rising 2.4 percent as companies spent on manufacturing equipment and heavy construction machinery.

That compares with as 2.7 percent contraction in the previous quarter, a smaller fall than initially estimated. Capital expenditure was expected to rise 1.8 percent.

Private consumption, which accounts for about 60 percent of GDP, was the second-biggest driver of growth. Consumption rose 0.6 percent in October-December, less than the 0.8 percent increase expected and followed a 0.2 decline in the previous quarter.

Consumption was driven by spending on hotels and dining out, but that was partly a rebound from a decline in the previous quarter due to the natural disasters, a Cabinet Office official said.

“The economy is in gradual recovery as growth is led by private demand,” Japanese Economy Minister Toshimitsu Motegi said in a statement.

“China-bound exports of information-related materials have weakened as the Chinese economy slowed. We need to monitor uncertainty over global economic outlook including Chinese economy as well as fluctuations in financial markets.”

External demand – or exports minus imports – shaved 0.3 percentage point off gross domestic product, less than the median estimate of minus 0.4 percent. A breakdown of the data showed a 2.7 percent jump in imports due to increased shipments of mobile phones and clothes from overseas more than offset the increase in exports.

Despite the rise in exports, the trade war between the United States and China, the world’s two largest economies, is seen as a major risk for Japan’s exports of car parts, electronics, and heavy machinery to China, which are used to make finished goods destined for the United States and other markets.

“We expect exports for January-March will deteriorate as shipments of IT-related products to Asian nations, especially to China, will likely fall as the adverse impact from trade conflict appears,” said Hiroaki Muto, chief economist at Tokai Tokyo Research Institute.

“The economy for January-March is expected to grow but the global economic slowdown and a planned sales tax hike will hurt.”

Another risk is the Japanese government’s plan to raise the nationwide sales tax to 10 percent from 8 percent in October.

The government needs the extra tax revenue to pay for rising welfare costs, but some policymakers and economists worry the tax hike could hit consumer spending and weaken sentiment.

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Japan fourth-quarter annualized GDP up 1.4 percent

TOKYO (Reuters) – Japan’s economy rose at an annualized rate of 1.4 percent in October-December, government data showed on Thursday, as consumer spending and capital expenditure rebounded from natural disasters that disrupted corporate activity.

The preliminary reading for fourth-quarter gross domestic product matched the median estimate in a Reuters poll of economists. It followed a downwardly revised 2.6 percent annualized contraction in July-September.

On a quarter-on-quarter basis, GDP rose 0.3 percent, slightly less than the median estimate for 0.4 percent quarter-on-quarter increase.

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Goldman Sachs CEO says chance of U.S. recession in 2019 'quite small': CNBC

(Reuters) – Goldman Sachs Chief Executive David Solomon told CNBC on Wednesday that the momentum of U.S. economic growth has slowed but there is little chance of a recession in 2019.

“The chance of recession in 2019 is quite small and the expansion should probably continue,” Solomon said in an interview with CNBC. Commenting on growth in China, he said it is still “reasonable” despite having slowed.

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U.S. small business confidence falls to more than two-year low

WASHINGTON (Reuters) – U.S. small business optimism tumbled last month to its lowest level since President Donald Trump’s election more than two years ago amid growing uncertainty over the economic outlook.

The National Federation of Independent Business said on Tuesday its Small Business Optimism Index dropped 3.2 points to 101.2 in January, the weakest reading since November 2016.

The index surged after Trump’s electoral victory, boosted by his administration’s $1.5 trillion tax cut package and deregulation policy. It has declined for five straight months since hitting an all-time high last August, but remains high by historic standards.

Still, the index mirrored other confidence surveys, which weakened sharply last month.

“We believe the apparent boost to the survey data from increased partisanship since the 2016 election is starting to fade,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics in White Plains, New York.

The NFIB said its uncertainty index jumped 7 points to 86 last month, the fifth highest reading in the survey’s 45-year history. The rise in uncertainty coincided with the longest partial shutdown of the federal government in history.

The 35-day shutdown ended on Jan. 25 after Trump and Congress agreed to temporary government funding, without money for his U.S.-Mexico border wall.

The NFIB said “there is more talk about recession risk. It noted that small business owners worried “about future sales growth, some weakness in business conditions later in the year and some deterioration in conditions that would be supportive of business expansion.”

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Opinion | New York Needs Amazon

On Nov. 13, 2018, Amazon announced that New York would become one of two locations for the company’s second North American headquarters, ending a competition that had involved more than 200 places, including cities as diverse as Chicago, Atlanta, Denver, Newark and Austin, Tex. But there was hardly any cheering in New York. State Senator Michael Gianaris and other leaders protested that the agreement was bad for New York and bad for its people. They argued that it is absurd for city and state taxpayers to subsidize one of the world’s most valuable companies, owned by the world’s richest man, with as much as $3 billion in taxpayer money.

They are right about one thing. It is absurd that any city would agree to such a deal. But this is how the game is played. Paying companies to relocate has been the American way since 1936, when Mississippi established the nation’s first state-sponsored economic development plan. Under that plan, since followed by many other jurisdictions, cities and states agreed to pay companies to relocate by promising them new factories and low or nonexistent taxes. With those inducements, numerous businesses relocated in the decades after World War II, usually from the union-dominated Northeast and Midwest to the business-friendly South.

In this historical context, New York’s deal for Amazon is not a bad deal at all. But its opponents have condemned it, partly because the negotiations were held in secret and because the constituents most involved in the decision were not consulted. Absent serious renegotiations, they want Amazon to take its promise of 25,000 new jobs somewhere else. The greatest city in the world, they say, need not kneel before capitalist royalty.

Can the Empire City really afford to turn away from this opportunity?

Clearly, New York has overcome dozens of economic crises in its nearly four centuries of history. It was almost destroyed by fire in 1776 and 1778, and in 1835, the Great Fire of New York destroyed more than 600 structures and most of what is now Lower Manhattan. The 1863 Draft Riot took at least 100 lives and continues to rank as the worst civil disturbance in American history. The 1977 blackout resulted in widespread looting and property destruction — the low point in a dark period. And the worst of all, in terms of the loss of human life, was the attack on the World Trade Center in 2001, which killed 2,753 people. The attack also destroyed more than 10 million square feet of real estate, and the resulting crisis cost the region 223,000 jobs in just two years.

The potential loss of the Amazon headquarters would be more akin to a long-term disaster. During the 20th century, the city lost its two main economic underpinnings: its manufacturing base and its role as the busiest seaport on earth. In 1955, for example, about a million people worked in New York City’s factories, and in its crowded harbor, tramp steamers, ocean liners and tugboats struggled to avoid one another. New York was the leading industrial city in the world.

And yet, by 1980, a quarter-century later, the major job centers in the five boroughs had essentially collapsed. In 1900, New York had 90 breweries and was the beer capital of the nation. But by 1976, the last brewery in the city was gone, and Milwaukee and St. Louis were competing for beer supremacy. Similarly, in 1950, New York’s 300,000 textile workers made most of the women’s clothes sold in the United States. The city had no serious rival. But by 2017, only about 20,000 such workers remained.

New York’s job losses were not only blue-collar. During the 1970s, the city experienced an exodus of Fortune 500 corporations. Dozens of them moved their headquarters and took their executives with them. Some went to suburbs in Connecticut and New Jersey, but many more decamped for Atlanta, Dallas or Houston. The impact on the city was dramatic. Not only did workers laid off from those companies lose their jobs, but their spouses and children suffered as well. Many of them, as demographic statistics reveal, had to move to other states to make a living. Their departure was hidden by the fact that they were often replaced by millions of newcomers from other countries, but those immigrants could not immediately compensate for all those lost jobs.

The region now faces a calamity almost as bad as anything that has happened in the past. The loss of Amazon would cost 25,000 jobs directly, and those workers would support up to 82,000 more indirect jobs. The subsidies New York has offered to Amazon would have been given to any company promising so many jobs. And Amazon is expected to pay more than $27 billion in taxes over the next 25 years. Amazon will also build four million square feet of office space in Queens, providing billions more in construction spending.

More important, a new Amazon headquarters on the East River would signal that the future of this metropolis is as great as its past.

If Mr. Gianaris and his supporters have their way, and Amazon retreats to Nashville or Atlanta or some other more welcoming city, the mail order house that Jeff Bezos built will probably suffer little. But New York will lose its reputation as a center of economic opportunity, and the city will sink in status and importance. And its legislators and politicians will solidify their reputation as the most overpaid and incompetent in the nation.

Amazon’s opponents should take a longer-term view. If there is no economic opportunity, there are no jobs. If there are no jobs, there is no tax revenue. And without taxes, jobs and opportunity, New York will no longer be first among cities.

Kenneth T. Jackson is a professor of history at Columbia University and the editor in chief of The Encyclopedia of New York City.

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Red flags emerge as Americans' debt load hits another record

NEW YORK (Reuters) – Some red flags emerged for the U.S. economy late last year as credit card inquiries fell, student-loan delinquencies remained high and riskier borrowers drove home automobiles, according to a report that could signal a downturn is on the horizon.

The U.S. household debt and credit report, published Tuesday by the Federal Reserve Bank of New York, showed that the overall debt shouldered by Americans edged up to a record $13.5 trillion in the fourth quarter of 2018. It has risen consistently since 2013, when debt bottomed out after the last recession.

While mortgage debt, by far the largest slice, slipped for the first time in two years, other forms of borrowing rose including that of credit cards, which at $870 billion matched its pre-crisis peak in 2008.

(Graphic: U.S. credit card debt: tmsnrt.rs/2BwlOx0)

Consumer spending accounts for two-thirds of growth in the world’s largest economy and it is expected to hold strong this year even as the overall expansion cools after a hot 2018.

However one sign of consumer demand, credit inquiries, slipped in the second half of 2018 to the lowest level recorded by the New York Fed.

(Graphic: Waning demand for credit?: tmsnrt.rs/2E60aRP)

Another signal of weaker demand, the closing of credit cards and other accounts, jumped to its highest level since 2010, while flows into serious delinquency for credit cards rose 5 percent, up from 4.8 percent in the third quarter.

(Graphic: Household credit account closings: tmsnrt.rs/2BxSEgZ)

Serious-delinquency flows, a warning bell for economists because they can prelude defaults, spiked in the third quarter for student debt and remained there in the fourth quarter, with 9.1 percent of the $1.5-trillion total debt seriously delinquent.

(Graphic: Student loan debt: tmsnrt.rs/2BvZLpS)

These flows have also been rising since 2012 for auto loans, which rose slightly to total $1.3 trillion by the end of 2018, a year that had the highest number of auto loan originations since at least 1999.

New York Fed economists said that while creditworthy borrowers are mostly driving the growth in originations, the performance of auto debt is worsening.

“Growing delinquencies among subprime borrowers are responsible for this deteriorating performance, and younger borrowers are struggling most acutely to afford their auto loans,” said Joelle Scally, administrator of the New York Fed’s center for microeconomic data.

The Federal Reserve raised rates four times last year but is now taking a wait-and-see approach to further policy tightening in the face of an overseas slowdown, the expected slowdown at home, and muted U.S. inflation.

The report also showed that Americans have continued to turn away from home equity lines of credit, or HELOC, which can free up funds for other purchases. HELOC balances dropped to $412 billion in the fourth quarter, its lowest level in 14 years.

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Casino hub Macau braces for impact of slowing Chinese economy

HONG KONG (Reuters) – As the Chinese territory of Macau marks 20 years since its handover from Portuguese rule, slower mainland economic growth, a weaker yuan and a simmering trade war threaten to derail growth in the world’s biggest casino hub.

Macau, on China’s southern coast, is the only place in the country where casino gambling is legal. But casino revenue shrunk in January for the first time in more than two years, the government said, hampered by a lack of big-spending VIP players and a smoking ban imposed at the start of the year.

To compound matters, China this week lowered its economic growth target to 6-6.5 percent in 2019 as Beijing copes with U.S. tariffs and weakening domestic demand. “We remain watching the situation with caution … global growth is uncertain, and where the trade war ends up is also uncertain,” Matthew Maddox, chief executive of Wynn Macau, said on a conference call with investors on Jan 30. “We continue to experience peaks and valleys in Macau.”

Policy and regulatory changes are in focus this year with the election of a new leader in the Chinese special administrative region. And next year, casino licenses for Sands China, Wynn Macau, MGM China, Melco Resorts, SJM Holdings and Galaxy Entertainment will begin expiring.

Authorities have continued a multi-year clampdown on illicit capital flows from the mainland, taking aim at underground lending and illegal cash transfers.

The most recent bust, in January, involved the seizure of more than 30 billion yuan ($4.42 billion) just after Chinese President Xi Jinping warned of deep and complicated risks to China’s economy.

Regulators in Macau are also strengthening operating and disclosure rules for junket operators, such as tighter supervision of their accounts.

Tasked with bringing in VIPs to play in the glitzy casinos, these middlemen provide credit for high rollers and collect on their debts.

A new bill would regulate junkets further, said Paulo Chan, director of Macau’s Gaming Inspection and Coordination Bureau. The legislation is meant to improve the compliance of junkets, which often use underground banking networks.

The measures are expected to further cool the VIP market, which accounts for about half of the monthly $3 billion in casino revenue.

FLOOD OF VISITORS

During the Chinese New Year holiday, there was a 26.6 percent jump in visitors to the territory, hitting a record 1.2 million arrivals over seven days, according to data from Macau’s Tourism body. Hotels had an average occupancy rate of 97 percent.

Those visitors, however, are spending less inside Macau’s 39 casinos. Chinese consumers looking for more “experiential” holidays are instead heading out for egg tarts and to take selfies amid Macau’s pastel-hued architecture. The lower growth adds pressure for casino operators struggling with rising costs, said Praveen Choudhary, an analyst at Morgan Stanley based in Hong Kong.

Data on Chinese domestic loans and total social financing point to negative trends in the next six months, he added.

Although the newly opened Hong Kong-Macau-Zhuhai bridge now offers a 30-minute connection between Macau and Hong Kong’s international airport, limited hotel supply constrains overnight visitor growth, executives say, and a weaker yuan could affect how much they spend.

Analysts are unsure how bad the casino slowdown this year will be, with forecasts ranging from low single-digit growth to a decline.

The political leader Macau chooses in 2019 will work with mainland authorities for the next five years. The two likely contenders are Ho Iat Seng, president of Macau’s Legislative Assembly, and Lionel Leong, the secretary for economy and finance, which oversees the gaming industry.

Robert Goldstein, president of Las Vegas Sands, which controls Sands China, said the company remained strong believers in Macau.

“There is always something to worry about. We get that,” he said. “We are just very bullish and we are blinded by the extreme size of Macau, the market today but more important the market tomorrow.”

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Turkey opens government vegetable stalls in battle with inflation

ISTANBUL (Reuters) – Battling a sharp rise in food costs, Turkish authorities opened their own markets on Monday to sell cheap vegetables directly to shoppers, cutting out retailers who the government has accused of jacking up prices.

Crowds queued outside municipality tents to buy tomatoes, onions and peppers in Istanbul’s Bayrampasa district, waiting for an hour for items selling at half the regular shop prices.

The move to set up state markets follows a 31 percent year-on-year surge in food prices in January and precedes local elections next month in which President Tayyip Erdogan’s AK Party faces a tough challenge to maintain support.

Traders blamed storms in southern Turkey’s farming region for food price inflation, as well as rising costs of labor and transport. Authorities called it “food terror” and said they would punish anyone trying to keep prices artificially high.

“This was a game. They started manipulating prices, they tried to make prices skyrocket,” President Tayyip Erdogan said in a campaign speech on Monday. “This was an attempt to terrorize (society),” Erdogan said.

Under the government initiative, municipalities are selling vegetables at around 50 percent of prices recorded by the Turkish Statistical Institute in January. A maximum of three kilos of goods per person is allowed.

The move will be extended to rice and pulses such as lentils, as well as cleaning products, Erdogan said.

The project is currently taking place only in Istanbul, where around 50 sites are selling the cut-price goods, and in the capital Ankara. That means it is unlikely to have a direct impact on national inflation figures, but could mitigate the price rises for residents of Turkey’s two largest cities.

BARELY MANAGING

Mustafa Dilli, 55, said he was struggling to make ends meet and hoped shops would follow suit by lowering their prices. “I think I can only shop here from now on,” he said. “We barely make it through to the end of the month.”

Several shoppers in Bayrampasa said they hoped the sales would carry on after next month’s vote. “I am curious whether this will continue after the elections,” 43-year-old housewife Nebahat Deniz said as she bought spinach and eggplants.

Agriculture Minister Bekir Pakdemirli, visiting a tent set up by the Ankara municipality, said the project would continue as long as it is needed, and could become permanent.

Last week, authorities inspected fresh produce wholesalers and imposed fines totaling 2 million lira ($380,000) on 88 firms for setting unreasonably high prices, according to the Trade Ministry.

At an Istanbul food market in a covered parking lot, traders complained that they could not compete with municipality stalls they said were subsidized by taxpayers and had been set up to win votes.

Standing behind an array of peppers, tomatoes and fresh greens, one trader said he was being hit by rising costs across the board.

“Prices in the food market are affected by the price of plastic bags, employee wages, stall fees, taxes, fuel prices. All of them are increasing the cost of the goods,” said the trader, who only gave his first name, Yusuf.

“The government does not have these costs,” Yusuf said. “All of their costs are paid from the money out of our pockets.”

Another vendor, Erkan, said municipality sales were aimed purely at maximizing votes. “After the election, municipality sales will halt,” he said.

Erkan said the profit margin at his own stall, which supports three or four families, was very tight. “If we buy for 8 liras per kilo from the wholesaler we sell with little profit. We sell the goods for 9 liras for example,” Erkan said.

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