Gates in new push to fight malaria
Some late news: Seven Latin American countries are to benefit from a new anti-malaria initiative unveiled in Davos by the philanthropist Bill Gates and the Inter-American development bank.
The Regional Malaria Elimination Initiative is expected to deliver more than $180mn to fight the disease in Belize, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua and Panama.
Money from the Gates Foundation, the IDB and the Carlos Slim totalling more than $80bn is expected to leverage in a further $100mn from the countries affected.
Gates said:
“This collaboration will build on each of the partners’ unique capabilities and expertise to cover financial and technical gaps in the region, demonstrating that we can eliminate malaria today using current tools.
It will also help strengthen health systems in the region, positioning countries for success against other high-priority vector-borne diseases such as Zika, dengue and Chikungunya.”
More Macron reaction:
After very technical first part of his Davos speech in English on his domestic agenda, #Macron switches to French for a more lively segment on his vision of globalisation, in which he says governments should not engage in a "race to the bottom" towards constantly lower taxes
— Michel Rose (@MichelReuters) January 24, 2018
For someone striving for greater efficiency, he does go on a bit. #Macron #Wrapitup #Ineedmorecoffee
— Katie Martin (@katie_martin_fx) January 24, 2018
France's #Macron tells@wef #Davos2018 that corporations must find a "moral way to make profits" and taxation justice. https://t.co/tNf2tvAaKX
— Laurie Garrett (@Laurie_Garrett) January 24, 2018
Big scrum for Macron now he's (finally) finished pic.twitter.com/98EoEZ30xW
— Katie Martin (@katie_martin_fx) January 24, 2018
I think the social contract has to involve all the stakeholders. We have to fight against strategy of free riding.
A new global and shared framework should be based on co-operation and multilateralism..We have a tremendous responsibility..
The answer is partly here in this room. In a way our new frontier is our commitment. If we commit ourselves to make our current globalisation more fair..so we can converge and build a new globalisation.
We have a question. Do we decide to do it or no? And this is now?
(Applause as he ends)
We are committed to fighting against terrorism. We need to continue to work with our partners at military and diplomatic levels...
Sometimes we thought getting rid of a tyrant we didn’t like would get what we wanted...
But we have to win the war against terrorism and create conditions for a durable peace...We need to provide a development and education policy.
I think we have to reconnect with a framework which provides for the common good. Sustainable development, health, human rights - these can never be renounced, and we have to spell them out and regulate them in a common manner.
I hope private sector will come to our country to create jobs.. but I have to explain to people [globalisation] is good for them. Otherwise there will be nationalists, extremism.
We need to establish a new global contract, unless everyone understands they have a part to play it won’t work.
The new global contract has three duties: the right to invest, share and protect.
[On investment} one area we are not doing enough in is education, we have 750m adults who do not have basic literacy skills, we have to invest in education, the education of girls in particular. If we don’t invest there will be not equality. It is important all the countries here commit to this [investment in education globally].
The duty to share: there is a crisis of contemporary capitalism. It has become a capitalism of superstars, spreading of value added is not equitable. We have to establish mechanisms to share value added more equitably... We also need to speak about gender equality. In France we are launching initiatives [for more visibility], I welcome the commitments from Justin Trudeau.
If we want to share value better, we need a more co-ordinated tax approach at a global level. There should not be a race to the bottom. We need a strategy that avoids the maximisation strategies of some companies. It is a moral issue.
We need to renounce unbridled tax optimisation. Plus how can you have a tax on digital activities. We all want these big international companies in their country, but there is an unfair model [if they pay low taxes when national companies do].
Disruption from digital businesses will destroy millions of jobs, and if those companies do not help finance retraining of people affected, how can I explain that [to those people]
I am in favour of IMF being given mandate to survey whole financial system, especially those areas which escape regulation. Cryptocurrencies, shadow banking etc, are not being looked at by IMF, so we have to have a discussion.
At what point are we going to stop innovation. To say artificial intelligence, this is a red line. We need to have a framework of international co-operation to promote technology, but also to decide principles which should be decided by government not private companies.
Finally, protection, against terrorism, and financial protection. Need government and international co-operation for this. We need to have a discussion in G20, that there must be a monitoring of all those bodies which can promote social cohesion.
In terms of climate protection, we have committed to many things but not up to the commitments. China has done an enormous amount of work here. India is also very important.
But we now need to follow through and respect Paris agreement. Need a floor price for CO2, if not we won’t be credible.
China’s new Silk Road has to be a green road.
I hope by 2020 we will have an environmental pact which is legally binding.
The private sector must also live up to its commitments.
Finally it is the financial system which has to accompany this with green financing. In EU and eurozone we need to have a way of having a green financial sector.
Macron, who has been mostly been speaking in English, reverts to French.
Europe should find a new ambition. Economic growth is not an end in itself. We’ve made a mistake saying things will get better because we have growth.
The search for growth has sometimes made us forget what it takes to achieve it.
Some people thought that if we had growth, all problems will be solved. Not the case, because this growth is less equitable.
You cannot have a one stop solution. You have to co-ordinate positions.
Everything is being fragmented. We have societies made up of nomads. There are more and more people who think getting out of globalisation is the right option.
We have a major challenge, not just for governments. A lot of governments think you have to be more nationalist. States have often gone in wrong direction because we undermined internationalism.
For many years we have been going in the wrong direction.
In terms of trade we are moving back to strategies of non-co-operation, undoing what globalisation has been able to achieve.
For climate change we have not be able to achieve what we have said we would achieve.
And we haven’t established an organisation at a world level which looks at artificial intelligence and automation. We allow private companies to control this.
We have never had a multilateral approach to this. We are encouraging technological change..and we are in danger of living in a Darwinian world.
My message is France is back.
We will never have French success without European success.
Angela Merkel expressed her vision and we worked very closely in that direction.
The core strategy is: we have to fix some short term measures.
But we have to also redesign a ten year strategy for Europe. Europe has a role to play vis a vis China and the US.
If we want to avoid fragmentation of the world, we need a stronger Europe.
We have to have a 10 year strategy to make Europe a green, scientific and political power. We need more ambition to have a more united Europe.
I’m not naive, we will not build something that ambition at 27. But we have to change our methodology, not wait for all the people round the table to go forward, Those who do not want to move forward should not block the most ambitious people in the room.
This will make our eurozone much stronger, fairer.
At the end of this year, we hope for a common strategy for ten years.
First, its about human capital.
Our world has changed. We need less arms and more brains. People have to be trained in an efficient way. We began to reform our education system, we need better access to university.
We invest 5% of GDP in education, we will reform apprenticeships. We will invest €15bn in education and retraining over five years.
We will make innovation the centrepiece of the economy. Reform fiscal mechanisms, create a new €10bn fund for disruptive technologies.
The second pillar of this reform is investment and capital. We need more equity to finance risk and big innovations. We passed reforms to reallocate our savings in this direction. By decreasing corporate taxes, big reform on capital gain.
We have reinforced France’s attractiveness.
The third pillar is acceleration and flexibility. You need more flexible structures and rules to help different companies to change business model and readapt.
The idea is to realign France on Germany and northern Europe. Rules much more adapted to business environment, that is a big change and it makes us much more competitive.
Fourth pillar - make France a model in fight against climate change. That is a huge advantage in terms of attractiveness and competitiveness. Talent will come where it is good to live. We can create a lot of jobs with such a strategy. We passed reforms for this green strategy. Close coal fired power stations by 2021 (Applause).
Fifth pillar of domestic strategy is cultural change. A preference for red tape cuts and cutting complexities. We simplify and streamline processes, and simplify bureaucracy. During last six months we reduced like crazy the number of regulations.
We have to guarantee stability for people. We passed all these measures, voted these five year strategy on taxes. Visibility is the strategy and will not change, that is my commitment.
It is also about risk. In France it was forbidden to fail, and forbidden to succeed. Now it should be more easy to fail, take risk, but allow people to come back and try something else. When you take risk, you need reward, and you need to reduce the cost of failure.
France is a nation of entrepreneures, ao it was a mistake in France’s history.
We have taken action but let us not be naive. Globalisation is going through a challenge.
I came here to make a call for action, to all and every one of us.
France has been affected by change and globalisation.
A few months ago I had to fight with a nationalist party, since there was a lack of understanding about globalisation in my country.
Why, we didn’t deliver, results were poor. Some people proposed getting out of globalisation as a solution.
I have the responsibility to build a France that is prosperous and open, but also standing for those left behind.
I have to make France more competitive to finance a fair system.
Emmanuel Macron's speech begins
Macron says we are talking about globalisation in a place cut off from the rest of the world by snow. It is hard here to believe in global warming, and you didnt invite anyone sceptical of global warming this year. Applause.
Updated
A video clip has emerged of David Cameron, former UK PM, describing Brexit as “a mistake, not a disaster”:
The man who called the EU referendum says what he really thinks about Brexit...
— 5News (@5_News) January 24, 2018
In the corridors of the @wef, @David_Cameron is overheard speaking with business and political leaders from around the world - and they're all asking about Brexit. #WEF18 pic.twitter.com/z1pcbUJ87A
French president Emmanuel Macron is next up at Davos.
Waiting for Macron #WEF18 pic.twitter.com/qq69jTiZBQ
— Peter Thal Larsen (@peter_tl) January 24, 2018
Updated
Meeting with the Prime Minister of FYROM, Zoran Zaev, on the sidelines of the World Economic Forum. pic.twitter.com/nk8hUighqq
— Alexis Tsipras (@tsipras_eu) January 24, 2018
Today is being billed as a “moment of truth” by Greek government officials as prime minister Alexis Tsipras meets his Macedonian counterpart in Davos.
A solution to the seemingly unsolvable dispute between Greece and the former Yugoslav republic of Macedonia could be solved in Davos.
That, at least, is what both sides are hoping as Tsipras and his Macedonian counterpart Zoran Zaev meet this afternoon. The bilateral meeting takes the quest for a settlement a notch up the diplomatic scale and is being seen as possibly groundbreaking.
The two Balkan neighbours have been at odds over the former republic’s name for the past 25 years with Greece’ asserting that exclusive use of the nomenclature “Macedonia” conceals territorial ambitions against its own eponymous region of Macedonia. Around 100,000 demonstrators protested over the issue in the northern Greek capital of Thessaloniki on Sunday.
“It will be a moment of truth,” said a senior Greek official adding that it would allow Athens to see how far Skopje was willing to compromise on the issue.
Updated
More on the pound’s current buoyancy, and more to the point, the dollar’s decline. Connor Campbell, financial analyst at Spreadex, said:
The pound went on a tear this Wednesday, rocketing higher against the euro and dollar to mark the currency’s best session for more than a month.
Cable shot up a remarkable 1.6% as the day progressed, clearing not only $1.41 but $1.42 in one fell swoop. Though the UK jobs report was decent, the highlight being another minor fall in unemployment, the thrust of cable’s growth is coming from the dollar’s bruised and battered start to 2018.
Despite ostensibly having the end of the US government shutdown to cheer about the dollar found little room for positivity this Wednesday, almost solely due to Treasury Secretary Steve Mnuchin’s appearance at the World Economic Forum in Davos. At a press conference Mnuchin argued that a weaker dollar was better for the US economy for trade reasons, a comment that was tantamount to kicking an already very sickly dog.
Combine that lack of policy support with a weaker than forecast US flash services PMI and a disappointing existing home sales number and the greenback gave up the ghost as the bell rang on Wall Street, plunging to a variety of fresh lows as it matched its sharp decline against the pound with a 0.8% drop against the dollar and a 1% slide against the yen.
Of course these currency movements had major ramifications for the global indices. The Dow Jones was overjoyed at the dollar’s latest defeat, jumping 160 points to soar to a brand spanking new record peak of 26375. The European markets, on the other hand, shrank in the face of the pound and the euro.
With sterling not only destroying the dollar but rising 0.8% against the euro the FTSE took the brunt of the blows, falling to a 3 week low after dropping 0.7%. The DAX and CAC, meanwhile, both slipped 0.3%, despite the euro’s 3 year high-hitting gains against the dollar being tempered by its losses against sterling.
More US data, and a weak housing market report for December.
Existing home sales fell by 3.6% last month to a seasonally adjusted annual rate of 5.57m units, worse than the 2.2% decline which had been expected by analysts. The November figure was revised down from 5.81m to 5.7m units. The December fall came after three months of gains, and the National Association of Realtors attributed the decline to a shortage of houses at the lower end of the market.
But for the year as a whole, sales rose 1.1% making it the best performance in eleven years. NAR chief economist Lawrence Yun said:
Existing sales concluded the year on a softer note, but they were guided higher these last 12 months by a multi-year streak of exceptional job growth, which ignited buyer demand. At the same time, market conditions were far from perfect. New listings struggled to keep up with what was sold very quickly, and buying became less affordable in a large swath of the country. These two factors ultimately muted what should have been a stronger sales pace.
NF
Updated
US manufacturing climbs, services slip
We’ve had the initial January PMI numbers for January for the US, and unlike Europe it is manufacturing which is outperforming, rather than the service sector.
The IHS Markit manufacturing PMI has climbed from 55.1 in December to 55.5, while the services PMI slipped from 53.7 to 53.3. The composite index edged down from 54.1 to 53.8.
Despite the dips, all the indices were above 50, showing expansion rather than contraction. IHS Markit chief business economist Chris Williamson, said:
January saw an encouraging start to the year for the US economy. Business activity across the manufacturing and service sectors continued to expand, driving further job gains as companies expanded capacity. Manufacturing is faring especially well, in part thanks to the weaker dollar, providing an important spur to the economy at the start of the year.
Although the overall pace of economic growth signalled by the surveys waned to an eight-month low, the forward-looking indicators suggest the slowdown will prove transitory. In particular, business optimism about the year ahead improved markedly and inflows of new orders hit a five-month high. Growth should therefore pick up again in coming months.
Inflationary pressures meanwhile kicked higher, with January seeing the second-largest monthly increase in input costs since 2015. Higher oil prices were widely reported but, more generally, stronger demand is also helping companies push through price hikes.
US Markit Manufacturing PMI Jan P: 55.5 (est 55; prev 55.1)
— LiveSquawk (@LiveSquawk) January 24, 2018
-Services PMI Jan P: 53.3 (est 54.3; prev 53.7)
-Composite PMI Jan P: 53.8 (prev 54.1)
https://t.co/dmjPxWFSYy
NF
Updated
Wall Street opens higher
US markets have hit new records in early trading, helped by reasonable results from a number of major companies and the continuing weakness of the dollar.
The Dow Jones Industrial Average hit a high of 26,344, up more than 0.4%, while the S&P 500 gained 0.25% and the Nasdaq Composite rose 0.19%.
Dow, S&P and Nasdaq open at record highs https://t.co/ZR7PDycEio pic.twitter.com/ffDSgpzl1z
— CNBC Now (@CNBCnow) January 24, 2018
NF
A quick look at the pound versus the dollar and the euro since the EU eferendum, courtesy of the Press Association, and it is quite a contrast:
A tale of two pounds. Against the dollar, sterling is now down only 5% on the night of the referendum. pic.twitter.com/jgshf4P2qJ
— Ian Jones (@ian_a_jones) January 24, 2018
Against the euro, sterling is down 12%. pic.twitter.com/OujxFce8Fp
— Ian Jones (@ian_a_jones) January 24, 2018
NF
Merkel: Beware poisonous populism
Returning to the dangers of populism, Angela Merkel warns of the ‘poisonous mix’ created if people feel they are getting an unfair deal.
She warns against descending into stereotypes, saying:
When you say Americans are protectionist by nature, Germans are tight-fisted by nature, you are generalising. The next thing is Muslims are like this, Christians are like that.
If you not respect each person’s individuality, and already have your pre-conceived notion before you even talk to them, that is the very basis of populism.
Updated
We want to have a good partnership with Britain in the future, Merkel continues.
Access to the single market is contingent on the freedoms, including freedom of movement.
It’s in their hands how close they want the partnership to be. We are prepared to be open-minded about this partnership.
Angela Merkel now turns to the digital revolution, warning of the social damage that it could cause.
It’s not enough to just convince 20% or 30% of the population of the benefits of the digital age. Policymakers need to help people who will otherwise be left behind, she says.
The chancellor repeats her earlier point that we must avoid making the mistakes of the 20th century again.
The new digital economy creates good opportunities, Merkel says, but it also creates “enormous confusion, and people feel left behind”
We must create a true social market economy as we say in Germany in this digital age.
Merkel ends with a request - keep your fingers crossed for us getting into government as soon as possible.
Are you listening, Donald?
“If we are of the opinion that things are simply not fair, that there is no reciprocity, then we have to seek multilateral answers, and not pursue a unilateral protectionist course where we isolate ourselves." - Angela Merkel, #Davos18
— ian bremmer (@ianbremmer) January 24, 2018
Wonder who she’s alluding to 🤔
Turning to Brexit, Angela Merkel says Britain’s decision to leave the European Union is regrettable.
But on the upside, it has given Europe “the courage to move forwards”.
She also name checks France’s new(ish) leader, Emmanuel Macron, saying his victory last spring has given a new impetus to Europe’s reform drive.
Merkel is making some important points about Europe’s role in the world:
Merkel: we were always proud of freedom of movement but we never really thought about protecting our external borders. Now we’re working on our entry exit system... Only shutting ourselves off doesn’t help to protect borders. You need good agreements with neighbors. #WEF18
— Tony Connelly (@tconnellyRTE) January 24, 2018
Lots in this Merkel speech. "Europe hasn't been all that active in its foreign policy...we need to take more responsibility. We need to take our destiny into our own hands." https://t.co/fdEGrdubbi
— HansNichols (@HansNichols) January 24, 2018
Merkel: Protectionism is not the answer
Angela Merkel warns that populism is on the rise, with a “polarising state of affairs in many countries”.
The German chancellor cites the “disruptive changes of technology”, which is shaking up society and worrying people.
There is also polarisation in Germany for the first time in decades, Merkel continues - following the eurozone crisis, and challenge of migration.
Merkel reminds us that she is still holding talks to form a new government (with the social democratic party). But she’s certain that Germany wants to make a contribution to solving the problems of the world.
Shutting ourselves off from the rest of the world will not help she says, adding:
Protectionism is not the proper answer.
Merkel: Have we learned the lessons of history?
Next up: German chancellor Angela Merkel take the stage.
She reminds delegates that 2018 marks the 100th anniversary of the end of the first world war.
The political actors a century ago ‘sleepwalked’ into a crisis, Merkel says.
We must ask ourselves...have we learned the lessons of history, Merkel continued. And she suggests we have not, declaring:
This generation born after the second world war will have to prove they have learned the lessons of history.
That means remaining committed to multilateralism, working together to solve problems, Merkel continues.
Taking questions, Italian PM Paulo Gentiloni says that the issue of migration had a big influence on the Brexit vote.
Italy is sticking to its principles, though, he says - saving the lives of those who try to get to Europe, and refusing to close its ports to those who cross the sea.
Gentiloni says:
This is one of the more costly political decisions you can take in these times. but this is the Italian decision, full stop.
And finally, Donald Trump speaks to Davos in two days time - what is your message to him.
“Welcome to Davos”, Gentiloni wisecracks.
But he then makes a serious point - that there is a limit to how far any one country can push things within the current framework.
Yes you can defend and protect your citizens, your workers, your companies, but we live in a framework of trade agreements, free trade, international rules, multilateral decisions, and we have to keep this system running.
“The electoral campaign is on in Italy. So in half an hour, I will leave #Davos,” says Italy’s PM @PaoloGentiloni #wef18 pic.twitter.com/IiALXJMoJX
— Florian Eder (@florianeder) January 24, 2018
Italian PM: 'Perfect storm' of Brexit, debt crisis and migration is over
Turning to new technology, Gentiloni says that digital innovation is threatening the quantity and quality of available jobs.
We must not give in to the idea of a world destined to be split between a cosmopolitan digital elite and an army of precarious and underpaid local workers.
And on Europe, the Italian PM says that the “perfect storm” caused by the Brexit vote, the economic crisis and unchecked migration is over. The EU now has an opportunity to relaunch itself.
Gentiloni says firmly:
These years are now behind our back.
Those who have bet on a final crisis of the European Union have clearly lost.
Italy is doing its bit to help with the migration crisis, Paulo Gentiloni says, saying that Italian investment is helping the African economy.
The Italian PM then reminds his audience that Italy has an election in 40 days - he hopes that populist forces will not prevail [unfortunately for Gentiloni, his Democratic party is lagging in the polls].
Populism, Gentiloni says, frequently gives the wrong answers to the right questions.
Politicians must not ignore the ‘deep causes’ of discontent among their citizens, he says
There are still unacceptably large parts of our populations who feel unsatisfied with their conditions and worried about the future.
The damage caused by the great recession has still not been mended, Gentiloni continues.
Economic growth is not reducing inequalities, but in many countries including Italy they are still widening, even if economic growth is there.
They are reaching even more intolerable levels.
Italian PM: Italian economy is improving
Italian PM Paulo Gentiloni is on his feet - telling Davos that Italy’s economy is improving.
Gentiloni says:
In the last two years, our economy is back to growth, and now it’s picking up speed.
One year ago, the IMF forecast that we would only grow by 0.7% in 2017. Actual growth in 2017, according to the IMF, was 1.6%.
He adds:
- Exports rose by 9.7% between November 2016 and 2017.
- Employment is up by one million units, to a 40-year high.
Gentiloni says his government is doing its best to improve the business conditions, reform the labour market, raise skills and cut bureaucracy.
This reforming effort must continue, and will continue, while our public debt must decrease at a steady and sustainable pace.
There’s a buzz in the main Davos congress hall, as delegates prepare to hear from Italian prime minister Paulo Gentiloni, and then German chancellor Angela Merkel.
Jack Ma has also warned Davos that technology could trigger a third world war, unless leaders work together to mitigate its disruptive effects.
He says:
“The first technology revolution caused the First World War and the second technology revolution caused the Second World War - and now we have the third.
“If there is a Third World War I think that should be a war against disease, pollution and poverty, not a war against ourselves.
“If we don’t align together , human beings are going to fight each other, because each technology revolution makes the world unbalanced.”
Hopes of a showdown between Theresa May and Jean-Claude Juncker at Davos tomorrow have been dashed.
The EC president has cancelled his visit after contracting stomach flu, so he won’t be giving his scheduled speech tomorrow.
President of EU Com Juncker has scrapped Davos-Trip amid #Euroboom. It would have been the first attendance in two decades. #WEF18 pic.twitter.com/2N4UCdhVuz
— Holger Zschaepitz (@Schuldensuehner) January 24, 2018
Here’s another quote from Alibaba’s Jack Ma, urging policymakers not to trigger a trade war:
“Globalization is a growing pain. It is so easy to launch a trade war but it is so difficult to stop a trade war and I’m scared and concerned.”
Jack Ma is 'scared and concerned' over a possible trade war https://t.co/UtA59fw58G pic.twitter.com/2ZziIP2RBR
— CNBC International (@CNBCi) January 24, 2018
Pound hits $1.4152 against the dollar
Sterling is climbing higher again, now up more than 1% at $1.4152. Apart from the weak dollar, one of the reasons for the pound’s strength at the moment is the prospect of further UK interest rate rises, hence a 0.7% gain against the euro to €1.1464. The stronger than expected employment and wage growth numbers only add to that expectation.
Kallum Pickering, senior UK economist at Berenberg, says:
While the Bank of England had initially responded to the risks to demand from the Brexit vote by easing its policy in August 2016, it became increasingly data dependent over the course of 2017, eventually hiking its main policy rate by 25bp in November – the first hike in a decade.
This came as a bit of a surprise for markets that seemed to be focusing more on downside risks to demand from Brexit than the signs of growing underlying inflationary pressure.
According to market pricing, the BoE is set to hike the bank rate once again towards the end of the year. In our view, this seems still seems inconsistent with the BoE’s data dependant approach and outlook for GDP and wage growth. Economic growth is likely to remain robust, partly helped by the strong global backdrop. Meanwhile, the BoE expects the unemployment rate to remain below its estimate of full employment (4.5% unemployment) throughout its forecast. It is becoming increasingly difficult for the BoE to justify its ultra-accommodative policy stance.
We therefore look for two hikes in the Bank Rate in 2018, one in Q2 and one in Q4, followed by one in Q3 2019. Even with a modest continued tightening in which the Bank Rate increased to 1.25% by the end of 2019, UK monetary policy would remain highly accommodative. We will be paying close attention to the forward guidance at the February Inflation Report for signs the BoE is preparing markets for another rate hike soon.
Daniel Vernazza, economist at UniCredit, is less hawkish on rates but admits today’s data could make a rise this year more likely:
We continue to expect the MPC will keep the stance of monetary policy on hold this year and only hike again once Brexit-related uncertainty is resolved, probably in 2Q19.
However, today’s labour market release, together with the likelihood of a robust 4Q17 GDP report due to be published on Friday, stronger global growth, and some resolution of Brexit-related uncertainty, increases the risks that the MPC already delivers another 25bp hike later this year.
Meanwhile here’s our full story on the day’s UK data:
NF
Updated
One of the attractions of Davos for the global elite is that they can squeeze in more meetings with fellow leader than in the average month.
IMF chief Christine Lagarde has been showing the way; offering support to Lebanon over its refugee crisis and giving Portugal a thumbs-up too.
Very please to meet in Davos with Portugal’s Prime Minister Antonio Costa and congratulated Finance Minister Mario Centeno on his election as President of Eurogroup. Portugal is reaping the benefits of its commitment to transform its economy, a positive path to be continued. pic.twitter.com/LvKiXM8DR7
— Christine Lagarde (@Lagarde) January 24, 2018
It was a pleasure to meet Prime Minister Saad Hariri on the margins of #WEF18 in Davos. We discussed economic and social conditions in Lebanon and the impact of regional developments on the country. The IMF will continue to support Lebanon and its people. pic.twitter.com/sn7LiXfGH8
— Christine Lagarde (@Lagarde) January 24, 2018
She even squeezed in a chat with cellist Yo-Yo Ma.
Delighted to have a ‘face to-face’ conversation with my friend @YoYo_Ma about the connections between music, economics, and human values. #WEF18 pic.twitter.com/pDJriyXv4V
— Christine Lagarde (@Lagarde) January 24, 2018
Jack Ma: Don't use trade as a weapon
E-commerce magnate Jack Ma has made a passionate plea to world leaders t Davos not to launch a trade war.
Speaking on a panel, the head of China’s Alibaba says trade should be a solution to the world’s problems. If you used it as a weapon, young people and businesses will suffer most.
Ma says:
‘They will be killed, just like when you bomb somewhere’.
An important view, given the tensions between China and the US - and Wilbur Ross’s comment about America ‘coming to the ramparts’.
Jack Ma @Davos : It’s so easy to launch a trade war, but it’s so difficult to stop the disaster of this war. Don’t use trade as a weapon, use trade as a solution to solve problems. Watch here: https://t.co/6U7FzZJx3n @wto pic.twitter.com/PXzpq9fiQp
— Alibaba Group (@AlibabaGroup) January 24, 2018
Updated
Back in Davos, the World Economic Forum have launched a new “Global Centre for Cybersecurity”
Based in Geneva, it’s meant to help build a safe and secure global cyberspace, and protect businesses and governments from online attacks.
Interpol and BT are also involved. Jürgen Stock, Secretary General of Interpol, says this partnership will address the “global threat” of cybercrime.
The pound has peaked at $1.4118 against the dollar, for the moment at least.
But it is still up 0.7% so far today at $1.4097. Connor Campbell, financial analyst at Spreadex, said:
A green-gilled greenback and a half decent UK jobs report made for a very strong Wednesday for the pound.
Kicking the currency while it was down, US Treasury Secretary Steven Mnuchin claimed at a press conference in Davos that a weaker dollar is good for the country’s economy ‘as it relates to trade and opportunities’. This turned an already bad morning worse for the greenback, with the currency falling 0.4% against the euro, where it’s sunk to a fresh 3 and a bit year nadir, and 0.7% against both the yen and the pound.
Sterling’s gains against the dollar caused cable to flit about the $1.41 mark for the first time since the Brexit referendum result back in June 2016. The pound didn’t stop there, however; it also rose 0.4% against the euro, lifting back to its best price in just shy of 7 weeks. The FTSE wasn’t best pleased with all this, dipping 0.2% as it continued to shed its early 2018 record-breaking momentum.
The pound was aided by a UK jobs report that by and large didn’t ruffle any feathers. Wage growth came in unchanged at 2.5%, and rose to from 2.3% to 2.4% excluding bonuses – in terms of its relation to inflation, though real wages are still being squeezed there are signs that this should ease in the coming months – while unemployment fell by 3000 to 1.44 million (the unemployment rate didn’t actually change, remaining steady at 4.3%).
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Back with the UK data. From Simon French, chief economist at Panmure Gordon:
The split personality of the UK labour market in two charts. Employment (31m) and employment rate (75.3%) keep hitting new highs. Private sector wages falling steadily for a decade - now £100/week below 2006 levels. pic.twitter.com/imAREdwOX1
— Simon French (@shjfrench) January 24, 2018
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Earlier, as well as the preliminary PMIs for France and Germany, there were also estimates for the eurozone as a whole.
This showed the same pattern, with manufacturing slipping back in January and services rising. The eurozone manufacturing PMI dipped from 60.6 to 59.8 while services climbed from 56.6 to 57.6. The composite index rose from 58.1 to 58.6. Unicredit Bank economist Edoardo Campanella said:
The eurozone starts 2018 with a bang, continuing to churn out solid economic figures. January’s Composite PMI hit a near 12-year high, rising to 58.6 from 58.1 and pointing to annualized GDP growth of almost 4%. Economic activity further accelerated in the services sector to the fastest pace since August 2007, while it slowed down in the manufacturing industry – after having recorded an all-time high last December.
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The UK jobs data today shows the difficulties employers are having filling vacancies, especially those companies which use a large number of EU migrant workers, says theNational Institute of Economic and Social Research. Associate research director Dr Heather Rolfe said:
UK labour market statistics released today show employment in the 3 months up to November 2017 is at a record high, driven by an increase in full time employment. However, vacancies are also at an all-time high, revealing difficulties for employers in some economic sectors, including those with a high proportion of migrant employees facing the challenges of Brexit.
This reflects what employers who have engaged in our Brexit research say they are experiencing on the ground – that they are losing some EU migrants and finding it more difficult to recruit both British and EU workers. The sectors with high vacancy rates include those with relatively high proportions of migrant employees, including from the EU. Accommodation and food services, where one in six workers are EU migrants is one such sector. The challenges of attracting and retaining workers are likely to increase with prolonged uncertainty about the terms of the UK’s departure from the EU.
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Neil Wilson, senior market analyst at ETX Capital, said:
Sterling breached $1.41 to record another post-Brexit high as a renewed bout of dollar softness and some better-than-expected employment numbers fuelled bids. Strong employment numbers were just the nudge the pound needed to get over $1.41, where it is just about holding at present.
After showing signs of a slowdown, there was a strong bounce back in employment in December. Wage growth ex-bonuses rose by 2.4% compared to 2.3% in the quarter to October. Although below inflation at the present there are signs that tentatively rising wage growth will converge with falling inflation in the coming months. Sterling’s recovery will only aid that process and is a reason to be more bullish on the UK economy and sterling. Generally speaking we are also seeing less chance of the cliff-edge exit with the tone of Brexit negotiations more constructive since December following the UK’s agreement to financial terms.
But for all the chatter about Brexit and UK unemployment numbers, this is very much a soft dollar story. The dollar index has given up the 90 handle and we have the dollar below 110 against the yen for the first time since September and the euro has broken to a fresh three-year high.
The pound is now well bid above its 50-, 100- and 200-day moving averages and with today’s blast above $1.41 seems set to consolidate above $1.40. There is not a huge amount of resistance on the upside for cable. The 50% retracement of the move from $1.71 to $1.19 is at $1.4590. Then we have the $1.4770 May 3rd 2016 high before the all-important $1.5000 level comes back into play. But these seem a long way off and depend entirely on dollar weakness to be sustained.
For that we will look to Davos and what president Trump says with regards to trade. Concerns about trade wars – put on the back burner last year as the administration battled with Obamacare and tax reform – have resurfaced. Tariffs on washing machines and solar cells may only be the start, while there are ongoing worries about Nafta. Trade concerns are trumping the Trump tax policy as far as the dollar is concerned. And the focus on the dollar’s slide seems to be dampening the mood generally in equity markets.
Nevertheless, dollar softness may well be overdone and shorts could be squeezed when GDP figures for the fourth quarter are released, which are likely to confirm yet more acceleration in growth in the US and could see markets bet on a faster pace of tightening by the Fed than currently priced in.
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Real wages are still being squeezed in the UK according to the latest data, with pay growth including bonuses steady at 2.5% and despite an increase from 2.3% to 2.4% when bonuses are excluded. Ben Brettell, senior economist at Hargreaves Lansdown, said:
With pay growing at 2.5% [including bonuses] and inflation running at 3.0%, the squeeze on real wages continues for the ninth consecutive month. But with inflation seemingly set to fall back towards the 2% target, this looks like it’ll come to an end in the next few months. We should remember, however, that the only true driver of real pay growth and rising living standards is productivity growth. This is something the UK has struggled with since the financial crisis, and as yet nobody seems to have solved the puzzle.
Suren Thiru, head of economics at the British Chambers of Commerce, said:
While it is encouraging that regular earnings growth picked up slightly, subdued economic conditions are likely to weigh on wage growth over the next year. As a consequence, pay growth is likely to remain stubbornly below price growth over the near term, dampening consumer spending, a key driver of UK GDP growth.
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The president of Brazil, Michael Temer, is speaking now -- encouraging business leaders to provide fresh investment.
Temer making a sales pitch. "Brazil is back in business. Do invest in Brazil, and you shall not regret it." #Davos18
— Katie Martin (@katie_martin_fx) January 24, 2018
Jasper Lawler, head of research at London Capital Group, said:
The relentless rise in sterling, which has seen it jump over 3% in the last 10 days is looking durable. The good news for the economy is that more people are working with rising wages despite any uncertainty associated with leaving the European Union. Lord Jim O’Neil looks vindicated so far in his belief that strong domestic and global growth will overcome Brexit headwinds.
Matthew Brittain, investment analyst at wealth manager Sanlam UK, said:
The real worry [for the UK economy] is centred around the consumer where wages have been increasing at a lower rate than inflation (ie falling in “real” terms). So another bright spot in this release is that weekly earnings ticked up from 2.3 to 2.4% versus a year ago, which is still lower than inflation (3%) but at least the gap is steadily being closed
Since the data makes it slightly more likely that the Bank of England will increase interest rates later on in the year the immediate reaction is a rise in sterling to £1.41 with bonds and equities both under a little pressure.
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Pound hits new post Brexit vote high
Sterling has climbed above $1.41 against the dollar after the better than expected UK unemployment and wages data.
It is up 0.7%, a new peak since the Brexit vote but still below the $1.4878 level on the day of the referendum itself. Against the euro sterling is up 0.3% at €1.1416.
Pound pushes above $1.41 after U.K. jobs and wages data. pic.twitter.com/82ez8VBcYI
— Peter Hoskins (@PeterHoskinsTV) January 24, 2018
The pound is benefitting from the signs of a stronger economy, and growing hopes that a Brexit deal can be reached.
It is also being helped by the weakness of the dollar, which has fallen even more after the comments from US Treasury secretary Stephen Mnuchin at Davos.
The US currency has been under pressure since the tax cuts announcement, with fears the reforms would push the country’s huge deficit even higher. News of trade sanctions against South Korea and China have not helped, prompting fears of retaliation. Dennis de Jong, managing director of UFX.com, said:
Sterling has bounced back in fine style, particularly against the dollar where it has climbed above $1.40 for the first time since the historic Brexit vote.
Unemployment continues to fall, while there are signs that wages are finally growing, with employees willing to take more risks to ask for a pay rise, or even consider moving jobs.
Although nothing has been decided yet, the general consensus is that the final version of Brexit could be softer than previously thought, which can only be good for the UK economy as a whole.
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Here’s more details from former UK PM Tony Blair at Davos (speaking on Bloomberg TV)
Asked whether there was any other way to avoid Brexit apart from having a second referendum, Blair said:
“You could have a general election.
“If we do go through with Brexit - and I hope we don’t - it’s going to be a complete change and we will have to fashion a new future for the country.”
He said that when people have clarity on what the Brexit deal might look like - and he suspects it will be “hotch potch” - “I think it will be very difficult to persuade people that’s better than what we have now.”
Q: What is he expecting from Trump’s speech on Friday?
“I don’t know what to expect. For me the issue is not responding to what Donald Trump has just said, it’s the reasons that brought him to power ... the cultural and economic alienation ... this is the root of the problem that needs to be addressed.”
Nice to see regular UK wages nudge higher if only a little bit https://t.co/A8YmyX4qde
— Shaun Richards (@notayesmansecon) January 24, 2018
UK employment rises and wage growth improves.
UK employment rose unexpectedly in the three months to November, while wages rose by a higher than forecast 2.4%, excluding bonuses.
The number of people in work rose by 102,000 in the quarter, said the Office for National Statistics, the biggest increase since the three months to July. Analysts had expected a fall of 13,000.
The unemployment rate was steady at a four decade low of 4.3%.
As for wages, the 2.4% figure was up from 2.3% in the three months to October and better than the forecasts of a flat reading. With inflation slipping back from 3.1% to 3% in November, the wage gap has edged lower.
Total pay growth including bonuses was steady at 2.5%, as forecast.
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Updated
German and French manufacturing slips but services edge higher
While the German and French leaders are at Davos, there is some reasonable data from both countries.
The latest manufacturing PMIs for the two have come in below expectations but the service sector has outperformed.
For France the preliminary manufacturing PMI for January came in at 58.1, down from 58.8. The services PMI rose from 59.1 to 59.3, with the composite PMI up from 59.6 to 59.7.
In Germany the manufacturing index fell from 63.3 to 61.2, the services rose from 55.8 to 57 but the composite slipped from 58.9 to 58.8
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The US dollar is sliding like an ill-prepared delegate on the streets of Davos, thanks to Stephen Mnuchin.
The Treasury secretary’s comment about not being worried about the weak dollar has sparked another wave of selling, sending the greenback to a fresh three-year low.
Fuel, meet fire.
— Jamie McGeever (@ReutersJamie) January 24, 2018
U.S. Treasury Mnuchin says a weaker dollar is good for the US. The dollar, already on the slide, falls further to a fresh 3-year low. pic.twitter.com/8amXQGmPMD
Former chancellor George Osborne says the vote for Brexit was “an alliance of the insulated and the insecure”.
In a discussion on the causes of Brexit and Donald Trump’s victory
Osborne said the insulated were elderly voters who owned their homes
outright but were anxious about the pace of change while the insecure
were “on the margins of employment and looking for something to
address their grievances.”
Snap summary: The Mnuchin and Ross show
That was a classic good-cop/bad cop performance from Stephen Mnuchin and Wilbur Ross at Davos this morning.
Mnuchin tried to calm concerns ahead of Donald Trump’s visit, by insisting that America First wasn’t incompatible with working with other countries.
But Ross was more combative, insisting that America had been treated badly by other nations in the past, and that Trump is simply levelling the score.
Ross comments about “US troops coming to the ramparts”, and other countries talking about free trade but actually being protectionist, are a hint about how the US will behave behind the scenes at the World Economic Forum this week.
Here’s some reaction:
US Secretary of Commerce Wilbur Ross said in #Davos that property rights, steel and aluminum will be next for protections in the US, and recently initiated action on some aluminum products from China. pic.twitter.com/Te0ZHT9tMZ
— Global Times (@globaltimesnews) January 24, 2018
Wilbur Ross on trade: "You are aware of the actions taken yesterday. You are aware of the some of the actions that have preceded it. THERE WILL BE MORE TO COME." #trade #Davos
— Heather Long (@byHeatherLong) January 24, 2018
Final question -- will the US be reassuring delegates at Davos that it isn’t creating a ‘race to the bottom’ on tax?
Stephen Mnuchin replies that he’s always been clear with fellow finance ministers that this isn’t America’s objective.
This was about creating a comparable system for US companies to compete fairly, and we see that working.
Q: What retaliations do you think China might take if the US imposes new tariffs?
Every time you take a trade action, there is the possibility of the other side taking a trade action in retaliation, Wilbur Ross replies.
To the degree that this happens, there’s also a question about what the US would do next, Ross continues.
Boom! Asked about the dangers of a trade war, US commerce secretary Wilbur Ross argues that it has been underway for some time.
The difference is that the US troops are now coming to the ramparts.
Stephen Mnuchin denies that there’s a clash between America being ‘open for business’ and President Trump’s economic goals.
This is about an America First agenda, but America First does mean working with the rest of the world.
President Trump is looking out for US workers and US interest, just as he’d expect other world leaders to do, Mnuchin adds.
Q: How concerned are you about the weakness of the US dollar?
The dollar is one of the most liquid markets. Where it is in the short term is not a concern at all, says Mnuchin.
A weaker US dollar is good for trade, he continues.
And in the long term, the strength of the US dollar is a sign of the strength of the US economy.
Updated
Mnuchin: US tax cuts are working
Q: Have you any evidence that your tax reforms are boosting investment?
The vote from the market is ‘pretty positive’, Mnuchin replies.
We’ve seen many companies come out and commit hundreds of millions of dollars, if not billions of dollars, he says - citing Apple as an example.
We couldn’t be happier. The response from US businesses has been even better than we expected.
Q: How does the America First economic agenda match up to the World Economic Forum’s goals?
Our objective is to be here to interact with our counterparts. That’s very important for the world’s biggest economy, Mnuchin replies.
Commerce secretary Wilbur Ross weighs in too, repeating that some of America’s trading partners are protectionist, even if they talk about free trade.
We don’t think that adhering to the rules is protectionist. We think in fact it is essential to having markets operate properly, to have people play by the rules.
Q: Are you worried that China might cut its holdings of US government debt?
Treasury secretary Mnuchin says that some of the reporting of this issue has been inaccurate.
The market for US treasuries is ‘deep’, he adds.
Q: Is there a bubble in the United States financial markets?
Mnuchin says that forums like Davos are never very good at predicting markets.
What we see in the US markets is a reaction to the economic changes we’ve made, he suggests - but he doesn’t want to comment on other markets.
As we look at US economic growth against the rest of the world, US economic growth looks very good - and it’s a good place to invest, he continues.
Q: What do you think about Justin Trudeau’s comments about NAFTA yesterday?
We totally believe in full and free trade - anyone who wants to do it on a reciprocal basis are very welcome, Stephen Mnuchin replies.
Q: What might you do next against China over protectionism?
Wilbur Ross: There are a number of other actions pending. Reports have been drawn up for President Trump to consider (he references the aluminium market)
There will be a very busy trade agenda in terms of those actions by the US, and there are the formal actions with relation to NAFTA, Ross adds.
First briefing in Davos with US delegation: Mnuchin, Ross and several Trump’s advisors: “we are open for business” #WEF2018 pic.twitter.com/sV82ix96f0
— Jorge Valero (@europressos) January 24, 2018
Commerce secretary Wilbur Ross speaks next, and rubbishes the idea that the US tax cuts are creating a new trade barrier
This is a “funny concept”, Ross says:
The US has been on an uncompetitive model before, but it is now on a very competitive one.
Ross also touches on free trade -- and insists that any actions taken by America are in response to “inappropriate behaviour” by America’s trading partners.
Many countries are very good at the rhetoric of free trade, but actually practice protectionism.
US treasury secretary Mnuchin's briefing
Stephen Mnuchin, the US Treasury secretary, has just arrived at a packed-out press briefing here at Davos.
He’s accompanied by Secretary of Commerce Wilbur Ross.
Mnuchin begins by saying he’s thrilled to be at Davos, with the largest US delegation to WEF ever.
Obviously tax reforms and tax cuts were a major part of what we achieved in Donald Trump’s first year, Mnuchin says - which will bring “literally trillions of dollars” back to the UK.
We are committed to achieving a 3% growth target, Mnuchin continued. And that’s not just good for the US, it’s good for the world economy too.
Mnuchin declares:
We are open for business, and we look forward to being here through the week.
Updated
Former UK prime minister Tony Blair is in town! He just spoke to Bloomberg TV about the need for “progressive centerism”. More on that later...
The boss of Lloyds of London has warned that the focus on dry economic measures such as GDP has helped to create the backlash that led to Brexit.
Speaking to CNBC at the World Economic Forum, Inga Beale said policymakers need to think differently about how they measure the economy.
Beale explained:
I do remember, when we were going through the campaigning around Brexit, in the UK, we, as businesses, were talking about GDP. Most of the members of the public don’t even know what that means, you know, they-, it doesn’t relate to them.
And there’s a definite feeling that they’re not being included, and they want to challenge the, you know, the ‘as is’, at the moment. They really want to go out and say, ‘I’m not happy with this status quo. You’re not hearing me. You’re not respecting me. I’m not included.’ And when we talk about GDP, that doesn’t feel very inclusive for them.
On Monday, the World Economic Forum did launch a new, more inclusive measure of economic performance that also tracked inequality and sustainability. Britain came just 21st.
Sounds like Emmanuel Macron is only paying a flying visit..
France's Macron will be in Davos for all of four hours. Meeting with Netanyahu, Jordan's King Abdullah. No one from US delegation, at least officially. #WEF2018
— Alex Pigman (@AlexRPigman) January 24, 2018
Last night, around 2000 demonstrators in Zurich marched in protest at Donald Trump’s visit to the World Economic Forum.
Reuters reports that a small group even managed to demonstrate here in Davos:
About 20 demonstrators broke through security to reach the Davos Congress Centre, holding banners and shouting “Wipe out WEF” before they were peacefully disbanded by police.
“Trump is just one of the other people we disagree with. We’ve been protesting every year now against the World Economic Forum and if Trump comes or not we don’t care. Trump is just, maybe he’s just the best symbol of this world,” protester Alex Hedinger told Reuters TV in Davos.
Now this is interesting.... Treasury secretary Stephen Mnuchin is going to give a briefing at Davos in around 30 minutes.
Today’s meeting is billed “We are open for business” - perhaps an attempt to calm worries over President Trump’s America First agenda....
US White House channeling EU bubble-speak in title for Mnuchin briefing. "We are open for business". #wef
— Alex Pigman (@AlexRPigman) January 24, 2018
Just In: US Secretaries will hold press briefings every day the rest of the week at #WEF18 in #Davos in an effort to get their message out and clarify their America First message.
— Heather Long (@byHeatherLong) January 24, 2018
First up today = Treasury Secretary Mnuchin.
Here are the Trump team’s planned themes pic.twitter.com/HHLoR8Fbvw
The agenda: Merkel, Macron, Mnuchin....
Good morning. The second day of the World Economic is getting underway, with a strong European flavour.
German chancellor Angela Merkel, French president Emmanuel Macron and Italian prime minister Paolo Gentiloni are all due on the Davos main stage today - a chance to set the agenda before Donald Trump’s eagerly-awaited speech on Friday.
But the Americans are already fighting for the spotlight. US Treasury secretary Stephen Mnuchin is in town, and speaking to the press this morning (we’ll hopefully have more on that soon).
Spain’s King Filipe, and the presidents of Brazil and Zimbabwe are also making appearances.
Plus, Davos delegates will be discussing economic inequality (despite the obvious irony), slavery, and the opportunity and threats posed by technology.
There’s even a footballer in town. Manchester United’s Juan Mata will be pushing his Common Goal charitable fund, which encourages sports stars to donate some of their massive salaries to good causes.
Here’s some of the events we’ll try to cover:
- 10am Davos (9am GMT): IMF chief Christine Lagarde on “Solving the Economic Generation Gap”
- 10.20am Davos (9.20am GMT): Special Address by Michel Temer, President of Brazil
- 11.15am Davos (10.15am GMT): Spain’s King Felipe VI speaks
- 12.30pm Davos (11.30am GMT): Session on ‘Stabilizing the Mediterranean’ with Italian PM Paolo Gentiloni and Greece’s Alexis Tsipras
- 2pm Davos (1pm GMT): Zimbabwe President Emmerson Mnangagwa speaks
- 2.20pm Davos (1.20pm GMT): Special Address by Angela Merkel, Chancellor of Germany
- 3.30pm Davos (2.30pm GMT): Google Chief Executive Sundar Pichai on AI and technology’s impact on society
- 4pm Davos (3pm GMT): A session on how to end slavery
- 5.30pm Davos (4.30pm GMT): Special Address by Emmanuel Macron, President of France
- 6pm Davos (5pm GMT): Manchester United’s Juan Mata talks about his Common Goal charitable work
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