Stocks turn mixed, dollar faces rate hike uncertainty

SYDNEY (Reuters) – Share markets turned mixed in Asia on Monday amid conflicting signals on the prospects for a truce in the Sino-U.S. trade dispute, while the Federal Reserve’s newly-found concerns over the global economy constrained the dollar.

MSCI’s broadest index of Asia-Pacific shares outside Japan dithered either side of flat through a sluggish session. Chinese blue chips manage to add 0.5 percent, as did Japan’s Nikkei.

But E-Mini futures for the S&P 500 slipped 0.36 percent and spread betters pointed to modest opening losses for the major European bourses.

Wall Street had firmed on Friday after U.S. President Donald Trump said that he may not impose more tariffs on Chinese goods after Beijing sent a list of measures it was willing to take to resolve trade tensions.

The comment stoked speculation of a deal when Trump meets Chinese President Xi Jinping on the sidelines of a G20 summit in Argentina later this month.

However, Sino-U.S. tensions were clearly on display at an APEC meeting in Papua New Guinea over the weekend, where leaders failed to agree on a communique for the first time ever.

U.S. Vice President Mike Pence said in a blunt speech that there would be no end to U.S. tariffs on $250 billion of Chinese goods until China changed its ways.

“The comments from Trump were seen as offering a glimmer of hope that further tariff action could be held in abeyance,” said NAB’s head of FX strategy, Ray Attrill.

“The exchange of barbs between Pence and Chinese President Xi Jinping in PNG on the weekend continues to suggest this is unlikely.”

SENSING A FED SHIFT

Also uncertain was the outlook for U.S. interest rates.

Federal Reserve policymakers are still signaling rate increases ahead but also sounded more concerned about a potential global slowdown, leading markets to suspect the tightening cycle may not have much further to run.

“Fed officials are having an easier time showing a slightly less hawkish leaning by noting the emerging global slowdown,” said Deutsche Bank’s macro strategist Alan Ruskin.

“It’s undercutting expectations of rate hikes moving above ‘neutral’,” which the Fed has nominated as between 2.5 and 3 percent. “This shift in tone is subtle, but fits with the more bullish bond market tone of late, and is starting to have a material impact on the dollar.”

That will focus attention on an appearance by New York Fed President John Williams later on Monday to see if he echoes the same theme.

Investors have already lengthened the odds on further hikes, with a December move now priced at 73 percent, down from over 90 percent. Futures imply rates around 2.74 percent for the end of next year, compared to 2.93 percent early this month. <0#FF:>

Yields on U.S. 10-year paper have duly declined to 3.06 percent, from a recent top of 3.25 percent.

The dollar followed to hover at 96.509 against a basket of currencies, down from a peak of 97.693. The euro was parked at $1.1400, while the dollar backed off to 112.72 yen.

Sterling remained vulnerable at $1.2826 after political turmoil over Brexit caused steep losses last week.

British Prime Minister Theresa May said on Sunday that toppling her would risk delaying Brexit as she faces the possibility of a leadership challenge from within her own party.

With both pro-EU and pro-Brexit lawmakers unhappy with the draft agreement, it is not clear she will be able to win the backing of parliament, raising the risk Britain leaves the EU without a deal.

In commodity markets, gold found support from the drop in the dollar and held at $1,1220.19.

Oil prices suffered their sixth straight week of losses last week, but have found some aid from expectations the Organization of the Petroleum Exporting Countries would cut output.

Brent crude was up 54 cents at $67.30 a barrel, while U.S. crude gained 70 cents to $57.16.

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Asia shares inch up, Fed caution curbs dollar

SYDNEY (Reuters) – Asian shares crept cautiously higher on Monday amid conflicting signals on the chance of a truce in the Sino-U.S. trade dispute, while the Federal Reserve’s new-found concern on the global economy undermined the dollar.

MSCI’s broadest index of Asia-Pacific shares outside Japan tacked on 0.1 percent and Chinese blue chips 0.5 percent.

Japan’s Nikkei gained 0.4 percent, but E-Mini futures for the S&P 500 slipped 0.3 percent.

Wall Street had firmed on Friday after U.S. President Donald Trump said that he may not impose more tariffs on Chinese goods after Beijing sent a list of measures it was willing to take to resolve trade tensions.

The comment stoked speculation of a deal when Trump meets Chinese President Xi Jinping on the sidelines of a G20 summit in Argentina later this month.

However, Sino-U.S. tensions were clearly on display at an APEC meeting in Papua New Guinea over the weekend, where leaders failed to agree on a communique for the first time ever.

U.S. Vice President Mike Pence said in a blunt speech that there would be no end to U.S. tariffs on $250 billion of Chinese goods until China changed its ways.

“The comments from Trump were seen as offering a glimmer of hope that further tariff action could be held in abeyance,” said NAB’s head of FX strategy, Ray Attrill.

“The exchange of barbs between Pence and Chinese President Xi Jinping in PNG on the weekend continues to suggest this is unlikely.”

SENSING A FED SHIFT

Also uncertain was the outlook for U.S. interest rates.

Federal Reserve policymakers are still signaling rate increases ahead but also sounded more concerned about a potential global slowdown, leading markets to suspect the tightening cycle may not have much further to run.

“Fed officials are having an easier time showing a slightly less hawkish leaning by noting the emerging global slowdown,” said Deutsche Bank’s macro strategist Alan Ruskin.

“It’s undercutting expectations of rate hikes moving above ‘neutral’,” which the Fed has nominated as between 2.5 and 3 percent. “This shift in tone is subtle, but fits with the more bullish bond market tone of late, and is starting to have a material impact on the dollar.”

That will focus attention on an appearance by New York Fed President John Williams later on Monday to see if he echoes the same theme.

Investors have already lengthened the odds on further hikes, with a December move now priced at 73 percent, down from over 90 percent. Futures imply rates around 2.74 percent for the end of next year, compared to 2.93 percent early this month. <0#FF:>

Yields on U.S. 10-year paper have duly declined to 3.06 percent, from a recent top of 3.25 percent.

The dollar followed to reach 96.441 against a basket of currencies, down from a peak of 97.693. The euro was up at $1.1414, while the dollar backed off to 112.66 yen.

Sterling remained vulnerable at $1.2833 after political turmoil over Brexit caused steep losses last week.

British Prime Minister Theresa May said on Sunday toppling her would risk delaying Brexit as she faces the possibility of a leadership challenge from within her own party.

With both pro-EU and pro-Brexit lawmakers unhappy with the draft agreement, it is not clear she will be able to win the backing of parliament, raising the risk Britain leaves the EU without a deal.

In commodity markets, gold found support from the drop in the dollar and held firm at $1,1221.92.

Oil prices suffered their sixth straight week of losses last week, but have found some aid from expectations the Organization of the Petroleum Exporting Countries would cut output.

Brent crude was up 72 cents at $67.48 a barrel, while U.S. crude gained 76 cents to $57.22.

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Oil rises on expected OPEC cut, but markets remain wary

SINGAPORE (Reuters) – Oil prices rose on Monday as traders expected top exporter Saudi Arabia to push producer club OPEC to cut supply towards the end of the year.

Despite that, market sentiment remains weak on signs of a demand slowdown amid deep trade disputes between the world’s two biggest economies, the United States and China.

Front-month Brent crude oil futures LCOc1, the international benchmark for oil prices, were trading at $67.29 per barrel at 0045 GMT, up 53 cents, or 0.8 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude futures CLc1, were up 61 cents, or 1.1 percent, at $57.07 per barrel.

“The market’s bullish radar is still waiting for OPEC+ to deliver a sizeable cut number,” said Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore.

The Organization of the Petroleum Exporting Countries (OPEC), de-facto led by Saudi Arabia, is pushing for the producer cartel and its allies to cut 1 million to 1.4 million barrels per day (bpd) of supply to adjust for a slowdown in demand growth and prevent oversupply.

Despite Monday’s gains, crude prices remain almost a quarter below their recent peaks in early October, weighed down by surging supply and a slowdown in demand growth.

On the demand-side, Japan’s October crude oil imports – which are the world’s fourth biggest, but which are in structural decline because of a falling population and improving energy efficiency – fell by 7.7 percent from the same month last year, to 2.77 million barrels per day (bpd), the Ministry of Finance said on Monday.

This comes as supply in the United States is surging.

U.S. energy firms added two oil rigs in the week to Nov. 16, bringing the total count to 888, the highest level since March 2015, a weekly report by energy services firm Baker Hughes said on Friday.

The rising drilling activity points to a further increase in U.S. crude oil production C-OUT-T-EIA, which has already jumped by almost a quarter this year, to a record 11.7 million bpd.

Put off by a surge in supply and the slowdown in demand, financial markets have been becoming increasingly wary of the oil sector, with money managers cutting their bullish wagers on crude futures and options to the lowest level since June 2017, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday.

The speculator group cut its combined futures and options positions on U.S. and Brent crude during the week ended Nov. 13 to the lowest since June 27, 2017.

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Republican Scott wins Florida U.S. Senate seat after manual recount

(Reuters) – Florida’s outgoing governor, Republican Rick Scott, was declared the winner of the state’s hard-fought U.S. Senate race on Sunday, following a manual recount of ballots in the tight contest against three-term Democratic incumbent Bill Nelson.

In the recount of the Nov. 6 election, Scott won by 10,033 votes out of 8.19 million cast statewide, Florida elections officials said on Sunday. Scott took 50.05 percent, compared with 49.93 percent for Nelson, the officials added.

Nelson, first elected to the Senate in 2000, became the latest incumbent Democratic senator toppled in the midterm congressional election in which President Donald Trump’s fellow Republicans expanded their majority in the Senate but lost control of the House of Representatives.

Other incumbent Democratic senators defeated in the election include Joe Donnelly in Indiana, Heidi Heitkamp in North Dakota and Claire McCaskill in Missouri.

Scenes of thousands of people across the state reviewing ballots during the recount process had brought back memories of Florida’s 2000 presidential recount, which ended only after the U.S. Supreme Court stepped in, effectively handing the presidency to Republican George W. Bush.

“I just spoke with Senator Bill Nelson, who graciously conceded, and I thanked him for his years of public service,” Scott said in an emailed statement.

The statement ended, “Let’s get to work.”

Nelson’s office said he will issue a statement later on Sunday.

Scott, who was prevented by state law from running for a third term as governor, emerged from the vote with a lead of less than 0.5 percentage points, which prompted a recount of the ballots. Republicans including Trump made allegations, without offering evidence, that the process was marred by fraud.

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The battle between Nelson and Scott and the race to replace Scott as governor both were closely watched contests in which Democrats had hoped to topple Republicans. On Saturday, Democrat Andrew Gillum conceded to Republican rival Ron DeSantis, an ally of Trump, in the governor’s race, which also went to a recount.

Scott, 65, entered politics from the business world, having amassed a personal fortune as a healthcare executive. He dipped into his wealth to help finance his campaigns, winning the governorship in 2010 and 2014 by about 1 percent of the vote.

Nelson, 76, has been a fixture in Florida politics since he won a seat in the state legislature in 1972. He then served in the U.S. House of Representatives and has held state Cabinet posts.

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Jordan's parliament passes IMF-backed tax law to reduce public debt

AMMAN (Reuters) – Jordan’s parliament approved a new IMF-backed tax law on Sunday after introducing some changes in a move to push ahead with crucial fiscal reforms to lower record public debt needed to get the economy hit by regional conflict back on track.

A majority of deputies in the chamber approved a series of amendments in the 36-article bill that included raising family exemptions to mitigate its impact on middle class income earners.

Jordan’s Prime Minister Omar al Razzaz earlier warned deputies the kingdom will pay a heavy price if parliament failed to approve the legislation, a main plank of austerity measures to ease a fiscal crunch and spur stagnant growth hovering at around 2 percent in recent years.

The bill will still need to go to the upper house or senate for approval before it is enacted as law. It is expected to be effective early next year, officials said.

Razzaz told deputies who were debating the legislation that failure to approve the bill would mean the kingdom would have to pay even higher interest rates on its substantial foreign debt.

Razzaz said the law promotes social justice by targeting the wealthy and combats long-time corporate tax evaders, but opposition deputies argue it will hurt the already stagnant economy and diminish middle-class incomes.

“The individuals who will be affected are the top 12 percent income earners, it won’t affect middle and low income earners,” Razzaz told deputies.

The government sent the bill to parliament in September after withdrawing an earlier draft submitted by a previous government that triggered protests over the summer.

Earlier this year, Jordan increased a general sales tax and scrapped a subsidy on bread as part of a three-year fiscal plan agreed with the International Monetary Fund, which aims to cut public debt of $37 billion, equivalent to 95 percent of gross domestic product.

The debt is at least in part due to successive governments adopting an expansionist fiscal policy characterized by job creation in the bloated public sector, and by lavish subsidies for bread and other staple goods.

Razzaz said rejection of the tax legislation would have pushed higher the cost of servicing over 1 billion dinars ($1.4 billion) of foreign debt due in 2019, raising the prospect of rating agencies downgrading Jordan’s credit ratings.

“We will pay a heavy price if we don’t approve this law,” he said before the vote.

The government has also echoed IMF concerns that without these reforms public external debt will spiral.

Debt service would peak in 2019-2020 at about 6.5 percent of GDP with the Eurobonds that will be due.

The country’s economic growth has been hit in the last few years by high unemployment and regional conflict weighing on investor sentiment and as demand generated from Syrian refugee receded, according to the IMF.

Economists said Jordan’s ability to maintain a costly subsidy system and a large state bureaucracy was increasingly untenable in the absence of large foreign capital inflows or injections of foreign aid, which have dwindled as the Syrian crisis has gone on.

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Jordan's lower house of parliament approves new IMF-backed tax law after introducing changes

AMMAN (Reuters) – Jordan’s lower house of parliament approved a new IMF-backed tax law on Sunday after introducing some changes in a move to help the cash-strapped economy move ahead with crucial fiscal reforms to ease record public debt.

A majority of deputies in the chamber approved a series of amendments in the 36-article bill that include raising family exemptions to mitigate any impact on middle class income earners.

The bill will still need to go to the upper house or senate for approval before it is enacted as law. It is expected to be effective early next year, officials said.

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Jordan PM says kingdom will pay heavy price if IMF-backed tax law not approved

AMMAN (Reuters) – Jordan’s Prime Minister Omar al Razzaz said on Sunday the kingdom will pay a heavy price if parliament fails to approve new IMF-backed tax legislation, a main plank of austerity measures to rein in record public debt.

Razzaz told deputies who were debating the legislation that failure to approve the bill would mean the kingdom would have to pay even higher interest rates on its substantial foreign debt.

Razzaz said the law promotes social justice by targeting the wealthy and combats long-time corporate tax evaders, but opposition deputies argue it will hurt the already stagnant economy and diminish middle-class incomes.

“The individuals who will be affected are the top 12 percent income earners, it won’t affect middle and low income earners,” Razzaz told deputies.

The government sent the bill to parliament in September after withdrawing an earlier draft submitted by a previous government that triggered protests over the summer.

Earlier this year, Jordan increased a general sales tax and scrapped a subsidy on bread as part of a three-year fiscal plan agreed with the International Monetary Fund, which aims to cut public debt of $37 billion, equivalent to 95 percent of gross domestic product.

The debt is at least in part due to successive governments adopting an expansionist fiscal policy characterized by job creation in the bloated public sector, and by lavish subsidies for bread and other staple goods.

Rejection of the tax legislation would push even higher the cost of servicing over 1 billion dinars ($1.4 billion) of foreign debt due in 2019, raising the prospect of rating agencies downgrading Jordan’s credit ratings, Razzaz said.

“We will pay a heavy price if we don’t approve this law,” he said.

The government has also echoed IMF concerns that without these reforms public external debt will spiral.

Debt service would peak in 2019-2020 at about 6.5 percent of GDP with the Eurobonds that will be due.

The country’s economic growth has been hit in the last few years by high unemployment and regional conflict weighing on investor sentiment and as demand generated from Syrian refugee receded, according to the IMF.

Economists said Jordan’s ability to maintain a costly subsidy system and a large state bureaucracy was increasingly untenable in the absence of large foreign capital inflows or injections of foreign aid, which have dwindled as the Syrian crisis has gone on.

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APEC fails to reach consensus as U.S.-China divide deepens

PORT MORESBY (Reuters) – Asia-Pacific leaders failed to agree on a communique at a summit in Papua New Guinea on Sunday for the first time in their history as deep divisions between the United States and China over trade and investment stymied cooperation.

Competition between the United States and China over the Pacific was also thrown into focus with the United States and its Western allies launching a coordinated response to China’s Belt and Road program.

“You know the two big giants in the room,” Papua New Guinea (PNG) Prime Minister Peter O’Neill said at a closing news conference, when asked which of the 21 members of the Asia-Pacific Economic Cooperation (APEC) group could not agree.

O’Neill, who was chairman of the meeting, said the sticking point was over whether mention of the World Trade Organization and its possible reform should be in the Leaders’ Declaration.

“APEC has got no charter over World Trade Organization, that is a fact. Those matters can be raised at the World Trade Organization.”

The multilateral trade order that APEC was established in 1989 to protect is crumbling as Chinese assertiveness in the Pacific and U.S. tariffs strain relations in the region and divide loyalties.

A Leaders’ Declaration has been issued after every annual APEC leaders’ meeting since the first in 1993, the group’s website shows.

O’Neill said that as APEC host, he would release a Chairman’s Statement, though it was not clear when.

U.S. President Donald Trump did not attend the meeting and nor did his Russian counterpart, Vladimir Putin.

U.S. Vice President Mike Pence attended instead of Trump.

Chinese President Xi Jinping arrived to great fanfare on Thursday and was feted by PNG officials. He stoked Western concern on Friday when he met Pacific island leaders to pitch his Belt and Road initiative.

The United States and its allies, Japan, Australia and New Zealand, countered on Sunday with a $1.7 billion plan to deliver reliable electricity and the internet to PNG.

PACIFIC THEATER

Wang Xiaolong, a senior economic official with China’s APEC delegation, said of the failure to agree on a joint statement that it was “not exactly a sticking point between any particular two countries”.

Most members affirmed their commitment to preserving the multilateral trading system and supported a robust and well-functioning WTO, he said.

“Frankly speaking, we are in a very early stage of those discussions and different countries have different ideas as to how to take that process forward,” Wang said.

One diplomat involved in the negotiations said tension between the U.S. and China, bubbling all week, erupted when the Chinese government’s top diplomat, Wang Yi, objected during a leaders’ retreat to two paragraphs in a draft document seen by Reuters.

One mentioned opposing “unfair trade practices” and reforming the WTO, while another concerned sustainable development.

“These two countries were pushing each other so much that the chair couldn’t see an option to bridge them,” said the diplomat, speaking on condition of anonymity.

“China was angered that the reference to WTO blamed a country for unfair trade practices.”

Pence said in a blunt speech on Saturday there would be no end to U.S. tariffs on $250 billion of Chinese goods until China changed its ways. On Sunday, as he left the PNG capital of Port Moresby, he listed U.S. differences with China.

“They begin with trade practices, with tariffs and quotas, forced technology transfers, the theft of intellectual property. It goes beyond that to freedom of navigation in the seas, concerns about human rights,” Pence told reporters.

Pence also took direct aim at Xi’s signature Belt and Road initiative, saying in his speech countries should not accept debt that compromised their sovereignty.

“We do not offer a constricting belt or a one-way road,” he said. 

CENTER OF ATTENTION

The Belt and Road plan was first proposed in 2013 to expand land and sea links between Asia, Africa and Europe, with billions of dollars in infrastructure investment from China.

APEC host PNG is home to 8 million people, four-fifths of whom live outside urban areas and with poor infrastructure, and found itself feted by superpowers.

Xi opened a Beijing-funded boulevard, while Pence talked of a 400-year old King James Bible in the PNG parliament that he had played a role in bringing to the country.

Australia, a staunch U.S. ally, has for decades enjoyed largely unrivalled influence among Pacific island nations. China has recently turned its attention to the region with a raft of bilateral financing agreements to often distressed economies.

PNG Foreign Minister Rimbink Pato said his country did not need to pick sides.

“For us, we welcome Chinese investment, we welcome U.S. investment. Our foreign policy is to be friends of all, enemies of none.”

(This story was refiled to change the reference to Wang Yi’s title in paragraph 17)

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U.S. envoy hopes for peace deal with Taliban in 2019: media

KABUL (Reuters) – The U.S. special envoy to Afghanistan hopes to cement a peace deal with Taliban insurgents by April 2019, local media reported on Sunday.

Zalmay Khalilzad, in Kabul to lead talks between the United States, the Taliban and the Afghan government, told reporters he hopes “a peace deal is reached before April 20 next year”.

Afghanistan is planning to hold a presidential election on April 20, 2019.

The Afghan-born U.S. diplomat said he remained “cautiously optimistic” about the peace talks.

Khalilzad, chosen by U.S. President Donald Trump’s administration to hold direct talks with the Taliban, met the leaders of the hardline Islamist group in Qatar last month to find ways to end the 17-year war in Afghanistan.

On Sunday Khalilzad said the end state of the talks would be “peace and a successful Afghanistan, one that doesn’t pose any threats to itself and to the international community”.

The Taliban were not immediately available for comment.

The insurgents, fighting to expel foreign forces and defeat the Western-backed Afghan government, last month presented demands to Khalilzad that included a timeline for the withdrawal of U.S. troops and the release of senior Taliban from jails.

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Junior UK Brexit minister says changing leader would be futile distraction

LONDON (Reuters) – Junior British Brexit minister Kwasi Kwarteng told the BBC on Sunday that toppling Theresa May as leader of the Conservative Party would be a futile distraction.

“Having a new leader is not going to reopen the negotiations, nor will it change the parliamentary arithmetic, so it is a futile distraction,” said Kwarteng, who was appointed by May last week after his predecessor resigned in protest at her Brexit plans.

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