UK fears Brexit could hurt global hunt for new BoE governor
British finance minister Philip Hammond has fired the starting gun for the race to succeed Bank of England Governor Mark Carney, but concerns about Brexit may keep some potential contestants on the sidelines.
Britain is unusual in throwing open the invitation to run its central bank to candidates from around the world.
Yet Carney’s tenure – the first for a foreigner at the BoE – has been seen as a success for the country’s financial diplomacy, and the government is keen to promote what it calls a “global Britain” after the country leaves the European Union.
The chances are high that the Canadian’s successor was somewhere among the thousands of delegates at the International Monetary Fund’s half-yearly meeting last week, where Hammond told media the process for finding a new governor was “getting underway”.
Attendees included all four of the BoE’s current deputy governors, the head of Britain’s market regulator as well as central bankers, academics and other policymakers from across the globe.
The role becomes vacant on Feb. 1 next year when Carney leaves after over six years on the job. This followed five years as governor of the Bank of Canada – during which he was courted by Hammond’s predecessor, George Osborne, when they met at international meetings in 2012.
But the next BoE governor will have to reckon with a sharply divided political backdrop on top of the obvious challenges that Brexit poses as regards short-term growth and longer-term regulatory relations with the EU.
“There may be some candidates who might be deterred from an application because of the political debate around Brexit, which inevitably the governor of the Bank of England can’t avoid being part of,” Hammond said in Washington.
Carney has been criticized by members of hardline pro-Brexit faction of the Conservative Party.
Jacob Rees-Mogg last year labeled Carney a “wailing banshee” and a “failed second-tier politician” who gave unfairly negative forecasts of the economic impact of Brexit. Boris Johnson, when foreign secretary, was dismissive of BoE predictions of Brexit damage.
Shortly after coming to power, Prime Minister Theresa May said in a speech that the BoE’s quantitative easing had damaging side-effects.
Brexit has certainly put off many other job-seekers. Recruitment agencies report falling numbers of job searches from overseas and net immigration to Britain by EU nationals fell to the lowest since 2009 last year – though non-EU immigration rose strongly.
Weekly Outlook: April 15 -19
The economic calendar in the U.S. is busy this week, with updates due on the housing market, retail sales, industrial production and trade which will give investors fresh insights into the health of the broader economy.
A number of Fed speakers are also on the docket, including Chicago Fed President Charles Evans and St. Louis Fed President James Bullard.
China is to release what will be closely watched economic data, including a look at first quarter growth on Wednesday, after a flurry of soft data from the world’s second largest economy spooked investors earlier this year.
It will also be a holiday shortened week, with most major financial markets closed on Friday for the start of the Easter holidays.
The U.S. dollar slid to its lowest level in two weeks against the euro on Friday as risk appetite was boosted by signs of economic stabilization in China and a strong start to U.S. corporate earnings season.
Chinese data showed exports rebounded last month, helping offset weaker imports, and reports of another reduction in Germany’s growth forecasts, analysts said.
Data from Europe was encouraging, with euro zone industrial output declining by less than expected in February.
“It’s a party-like atmosphere for markets. Good news from China and U.S. earnings off to an auspicious start,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.
“This has safe-havens on their back foot, that’s why the dollar is underperforming,” he said.
Against the Japanese yen, which tends to benefit during geopolitical or financial stress as Japan is the world’s biggest creditor nation, the dollar rose 0.34%.
The Australian dollar, which is sensitive to shifts in risk sentiment, was up 0.69%.
The British pound pushed higher against the greenback as traders were encouraged by the immediate risks around Brexit being pushed back by this week’s delay to the exit date. Sterling was up 0.19% at $1.3077.
The pound was weaker against the firmer euro, with the single currency up 0.23% to 0.8632 in late trade.
ING analysts said they expect sterling to fall over the next few months, in part because a Conservative party leadership battle could result in a hardline eurosceptic prime minister, and also because the six-month Brexit delay was too short for the Bank of England to tighten monetary policy.
The “partial clean-up of the GBP short positioning (and some built-up of new speculative longs) since the beginning of the year can also add to the reversal as GBP positioning is no longer meaningfully skewed one way,” the analysts wrote.
The Dutch bank predicts sterling will test levels of 88 pence per euro and $1.27.
Ahead of the coming week, Investing.com has compiled a list of significant events likely to affect the markets.
Monday, April 15
The Bank of Canada is to publish its business outlook survey.
Fed Bank of Chicago President Charles Evans and Boston Fed President Eric Rosengren are on the docket to speak.
Tuesday, April 16
The Reserve Bank of Australia is to publish the minutes of its latest policy meeting.
The U.K. is to release its employment report.
The ZEW Institute is to publish a report on German economic sentiment.
Canada is to release data on manufacturing sales.
The U.S. is to report on industrial production.
Dallas Fed President Robert Kaplan is to speak.
Wednesday, April 17
New Zealand is to publish inflation data.
China is to release figures on first quarter growth along with data on fixed asset investment and industrial production.
The U.K. is to report on inflation.
Canada is to produce data on trade and inflation.
Bank of England Governor Mark Carney is to speak at an event in Paris.
The Fed is to publish its Beige Book.
Philly Fed President Patrick Harker and St. Louis Fed head James Bullard are to speak.
Thursday, April 18
Australia is to publish its jobs report.
The euro zone is to release data on private sector activity.
The U.K. is to release data on retail sales.
Canada and the U.S. are both to publish figures on retail sales and the U.S. is also to release the Philly Fed manufacturing index and the weekly report on jobless claims.
Atlanta Fed President Raphael Bostic is to speak.
Friday, April 19
Financial markets in Hong Kong, Europe and the U.S. will be closed for the start of the Easter holidays.
The U.S. is to publish data on building permits and housing starts.
Stock Market News
Another Warning Is Flashing on Asia’s 12% Stock-Market Rally
- Net inflows to Asia equity ETFs have been tapering off: Citi
- Disconnect between rates and equity is disconcerting: Watson
Skeptics watching Asia’s double-digit stock market growth this year just got some data to help their case: equity ETF inflows have dwindled.
Despite a 9 percent increase to $502 billion in assets under management for Asia equity exchange-traded funds so far this year, net inflows have been tapering off, according to data compiled by Citigroup Inc. On top of that, a monthly net outflow — the second time in more than two years — was recorded in March.
The MSCI Asia Pacific Index’s 12 percent rally this year — adding about $4 trillion in value — has already been attracting some skepticism. Market watchers have been warning that investors should be cautious after the best first-quarter rally since 2012 for the regional benchmark index:
- Concerns about global economic strength and whether some developed markets will enter a recession a year or two from now
- This year’s lack of volatility not just in equities but across asset classes
- Japan is getting ready for a bilateral trade battle with the U.S., set for center stage in Washington this week as U.S.-China tensions cool
- Weak fund flows into Asia ex-Japan equity funds
- Regional equity valuations have risen at a tremendous pace of 20 percent since the December low
- Early earnings results tell a cautionary tale
“At the end of last year, we were pricing something like Armageddon in regards to rates and the trade outlook,” said Christopher Watson, London-based portfolio manager for total return strategy at Finisterre Capital, in an interview in Hong Kong Friday. “The equity market is convinced everything seems to be rainbow and sunshine for the remainder of the year. And I guess one of the things we find somewhat disconcerting is the disconnect between rates and equity,” he said.
VW to take on Tesla X in China from 2021 with electric SUV
Volkswagen plans to build a fully electric sports utility vehicle (SUV) for China from 2021, taking on the Chinese market leader Tesla’s Model X as the German carmaker ramps up production of zero emissions vehicles.
The planned new SUV is the latest move in Volkswagen’s aggressive growth strategy in China, where electric cars are given preferential treatment by authorities.
VW said its ID ROOMZZ, which it presented in Shanghai on Sunday, will have three rows of seats and an operating range of up to 450 kms. The concept car is capable of a “level 4 autonomous driving”, VW said.
VW Chief Executive Herbert Diess said the ID ROOMZ will be the flagship electric car to be launched by Volkswagen in China.
“We plan to produce more than 22 million electric cars in the next 10 years,” Diess said, adding that around half of VW’s engineers were working on products destined for China.
Diess said the ID ROOMZ would eventually be rolled out to other markets.
To enhance the VW Group’s research and development capabilities, Volkswagen and its premium brand Audi will combine their R&D operations in China.
VW brand’s head of e-mobility Thomas Ulbrich said the carmaker will start ramping up production of 33 electric cars by mid-2023, using VW Group’s modular electric car (MEB) platform to build electric cars for the Skoda, Seat, Audi and VW brands.
Ulbrich said VW Group is converting 16 factories worldwide to enable mass production of electric vehicles, of which eight plants will be making VW branded cars.
IMF and World Bank Launch Quasi-Cryptocurrency in Exploration of Blockchain Tech
The International Monetary Fund (IMF) and the World Bank have jointly launched a private blockchain and a so-dubbed quasi-cryptocurrency, the Financial Times (FT) reports on April 12.
According to the newspaper, the asset called “Learning Coin” will be accessible only within the IMF and World Bank. The coin has no money value and thus is not a real cryptocurrency, the FT underlines.
As the FT has learned, “Learning Coin” was launched in order to better understand the technologies that underlie crypto assets. Its app will serve as a hub where blogs, research, videos and presentations are stored.
During the test, the World Bank and IMF staff will earn coins for achieving certain educational milestones. The institutions will allow them to redeem the assets gained for some rewards, which will allow them to learn how coins can be used in real life.
Per the IMF, the banks and regulators across the world have to catch up with crypto technologies that are rapidly developing. The FT quotes the IMF as saying:
“The development of crypto-assets and distributed ledger technology is evolving rapidly, as is the amount of information (both neutral and vested) surrounding it. This is forcing central banks, regulators and financial institutions to recognize a growing knowledge gap between the legislators, policymakers, economists and the technology.”
Moreover, after the test, the World Bank and IMF reportedly might use blockchain to launch smart contracts, combat money laundering and enhance the overall level of transparency.
Earlier in April, IMF managing director Christine Lagarde said that blockchain innovators are shaking up the traditional financial world and have a clear impact on incumbent players. She also noted that the potential of blockchain-based technologies and assets is embraced by regulators and central banks, who recognize its positive effect.
Meanwhile, a World Bank official expressed a more skeptical point of view. According to Aanchal Anand, a Land Administration Specialist in the bank’s Global Land and Geospatial Unit, there is too much hype over blockchain, which causes unrealistic expectations.
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