‘I have a $3,000-a-month pension. I am living with my ill father, and I am currently not working and looking for a job. I am going to college using the GI Bill. I am almost 50, and have no 401(k).’
LONDON (Reuters) -British Airways owner IAG is confident travel will recover from July onwards after forecasting only a minimal increase in its capacity to 25% for the April to June quarter. IAG, which also owns Iberia and Vueling in Spain and Aer Lingus in Ireland, declined to forecast how much it would fly from July but said the recovery would be properly underway by then after more than a year of pandemic restrictions. "We consider in the second half that we are going to be flying and we are prepared for that," IAG Chief Executive Luis Gallego told reporters on Friday after the company posted a loss of 1.14 billion euros ($1.4 billion) in the first quarter.
Activist investor Edward Bramson has sold his firm's 6% stake in Barclays, disbanding a three-year effort to overhaul the British bank and ending a stand-off with chief executive Jes Staley. Bramson's fund, Sherborne Investors, had pressured Staley since 2018 to scale back investment banking and demanded his removal over his links to U.S. financier and registered sex offender Jeffrey Epstein, but Bramson struggled to gain much traction.
(Bloomberg) -- Follow Bloomberg on LINE messenger for all the business news and analysis you need.Hong Kong tycoon Li Ka-shing’s private investment firm Horizons Ventures Ltd. will make Southeast Asia a priority, with the region’s digital economy booming as the pandemic drives more people to use the internet.Horizons Ventures will focus in particular on Southeast Asia’s biggest market, Indonesia, co-founder Solina Chau, Li’s long-time confidante, told Bloomberg News in a statement sent by text message.The firm, whose early bet on Zoom Video Communications Inc. contributed to a surge in Li’s wealth during the pandemic, has over the past year invested in three Indonesia-based startups in funding rounds that have raised more than $210 million. Partnering up with Jakarta’s Alpha JWC Ventures, one of Southeast Asia’s largest venture capitalists, Horizons seeks to identify young companies that could be the region’s next most popular.The investment firm is pivoting into developing economies after previously focusing on North America, Europe and Israel. Covid-19 is fueling a rapid digital transformation and burgeoning startup scene in Southeast Asia as more people use digital services, generating some of the region’s largest listings. New internet users quadrupled year-on-year in 2020 to 40 million in its six largest economies -- bringing 70% of their total population online -- according to an annual study by Google, Bain & Co. and Singapore’s Temasek Holdings Pte.“In the past, we felt more innovation, opportunities and founders with science and technology background in the U.S., Europe and Israel, but now we are seeing Indonesia and broader Southeast Asia really going through a very critical juncture,” Frances Kang, a director of Horizons Ventures, told Bloomberg in an interview. The company “will only deploy more capital” into the region, she said, and has set up a team looking into opportunities there.Horizon Ventures and Alpha JWC have over the past year invested in Indonesian online stock brokerage Ajaib, rapidly-expanding coffee chain Kopi Kenangan and capsule hotel operator Bobobox. Alpha manages some $200 million across two funds and has invested in more than 40 startups.Still, the region’s political uncertainties and fragmented markets remain challenging for investors. Two of Southeast Asia’s leading economies, Thailand and Malaysia, have seen recent government upheavals, and memories of the 1997 and 2008 financial crises linger.Recent mega deals in Southeast Asia include the $40 billion listing of Singapore’s ride-hailing firm Grab and a similar deal for Indonesian online travel company Traveloka, with a potential valuation of $5 billion.Li, 92, joins other high-profile global investors chasing the region’s growth potential. His son Richard Li, chairman of Hong Kong’s Pacific Century Group, has teamed up with American tech mogul Peter Thiel to set up two blank-check companies seeking merger and acquisition targets in Southeast Asia. Japanese conglomerate SoftBank Group Corp. and billionaire Mohamed Mansour, meanwhile, have invested in Grab, the region’s most valuable startup.Horizons Ventures has made early investments in a number of other tech giants including Facebook Inc. and Spotify Technology SA.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
Aston Martin sales have surged as consumers flocked to buy a new SUV from the troubled luxury car maker. The business sold 1,353 cars in the first three months of 2021, more than double the 578 sales it made a year earlier. Around half of the cars sold this year were its DBX model, a 4x4 which costs at least £158,000. Revenue jumped 153pc to £224m and pre-tax losses more than halved to £42m. The sales are a boost for executive chairman Lawrence Stroll, a billionaire motoring enthusiast who took charge of Aston in January 2020 after mounting losses and a brutal run of share price performance. Mr Stroll has bet the company's future on the success of the DBX, insisting it would prove popular with drivers seeikng an ultra-high end SUV. The strongest demand in the first quarter came from China where sales jumped 900pc, Mr Stroll said. He said there is far more appetite for SUVs than sports cars in the Chinese market, where 20pc of buyers are female. Losses were reduced by what Mr Stroll described as an expensive but necessary decision to clear unsold stock languishing in forecourts. Aston now only builds cars to order, and expects to sell 6,000 vehicles this year.
(Bloomberg) -- As the pullback in Federal Reserve monetary support draws inexorably closer, investors are striving to taper-proof their portfolios with 2013’s volatility still fresh in their minds.Eight years ago this month, global yields jumped and risky assets fell on a hint from then-Fed Chairman Ben Bernanke that the central bank might start trimming its crisis-era bond program. Wary of a repeat volatility spike some fund managers are turning to lower-duration high-yield debt for shelter, while others see a tantrum-less taper and are betting on emerging market assets to prevail.With economists expecting the central bank to begin paring asset purchases by the end of this year, Fed officials are sticking to the script that it’s too early to discuss any shift in pandemic policy setting. But moves by counterparts in the U.K. and Canada to slow the pace of bond buying as their economies improve have reminded traders that the Fed cannot avoid the taper forever, especially as U.S. growth surges.“The biggest threat to the market is rates volatility jumping higher, like we saw at the end of February,” said Pilar Gomez-Bravo, investment officer and director of fixed income at MFS Investment Management in London. “The valuations of risky assets are high, so you don’t have a lot of room for complacency.”Gomez-Bravo favors junk bonds as an asset class less vulnerable to a reset in yields than their investment-grade peers, which have much higher duration or sensitivity to interest rates. Leveraged loans are an even better choice and some “stressed” debt securities should be less correlated to broader market repricings, according to Jefferies Financial Group Inc. credit strategist Sherif Hamid.Investment-grade bonds are already under pressure with the largest exchange-traded fund for high-grade credit experiencing its longest stretch of outflows since 2013, according to data compiled by Bloomberg.Taper TemplateBonds took the brunt of the 2013 turmoil, with Treasury yields jumping 50 basis points in the month after Bernanke spoke. Over the same period the MSCI Emerging Markets Index slumped 14% and the Nasdaq 100 fell 4%. However, the tech-heavy gauge now trades on 26 times forward earnings, compared to just 15 times then.This time around, BlackRock Inc. -- the world’s largest asset manager -- suggests that much of the move in the bond market may have already taken place, and emerging market assets should hold up much better.“We still think yields can move somewhat higher but tactically we think the big repricing of the activity restart is now mostly done,” said Ben Powell, chief Asia Pacific investment strategist for the BlackRock Investment Institute.The 10-year Treasury yield is up about 65 basis points this year and traded around 1.57% on Friday. The Bloomberg Barclays U.S. Treasury Total Return Index is down over 3% year-to-date.According to BlackRock, the combination of an economic recovery, heavy stimulus and a broadly stable dollar should be enough to spare risk assets -- including those from developing countries -- much of the impact of a gradual easing of central bank support.The firm is overweight both developed- and emerging-market equities, “and on the fixed-income side we actually upgraded EM local currency debt last week,” Powell said.Jackson HoleGauges of implied volatility in currencies, Treasuries and U.S. equities have retreated after a modest rise at the end of February suggesting investors don’t see an immediate risk of a Fed taper announcement. But trader activity in the options market points to Jackson Hole -- the annual gathering of central bankers in August -- as a likely candidate for taper talk to begin.Meanwhile, investors should parse minutes of Federal Open Market Committee meetings where past experience suggests discussions of tapering will appear first, according to Win Thin, Brown Brothers Harriman & Co.’s global head of currency strategy. Minutes for the April meeting will be released on May 19.“Suffice to say that Chair Powell will take great pains not to surprise the markets with a decision to taper,” Thin wrote Thursday. “Rather, it will be well-telegraphed and the minutes are the first place markets should look.”(Updates pricing in tenth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- Goldman Sachs Group Inc. is wading deeper into the $1 trillion Bitcoin market, offering Wall Street investors a way to place big bets.The investment bank has opened up trading with non-deliverable forwards, a derivative tied to Bitcoin’s price that pays out in cash. The firm then protects itself from the digital currency’s famous volatility by buying and selling Bitcoin futures in block trades on CME Group Inc., using Cumberland DRW as its trading partner. Goldman, which still isn’t active in the Bitcoin spot market, introduced the wagers to clients last month without an announcement.“Institutional demand continues to grow significantly in this space, and being able to work with partners like Cumberland will help us expand our capabilities,” said Max Minton, Goldman’s Asia-Pacific head of digital assets. The new offering is “paving the way for us to evolve our nascent cash-settled crypto-currency capabilities.”Goldman Sachs, which restarted a trading desk this year to help clients deal in publicly traded futures tied to Bitcoin, said in March it was also close to offering private wealth clients additional vehicles to bet on crypto prices. But the push into forwards dramatically increases its capacity to help big investors take positions. The partnership with Cumberland underscores the bank’s willingness to work with outside firms to help it do so, according to people familiar with the matter, speaking on the condition they not be identified.For years after its creation in 2009, Bitcoin was shunned by Wall Street banks, with JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon once threatening to fire any of his traders caught buying and selling the digital currency. While Dimon later softened his tone, the banking world has long seen Bitcoin as a plaything for criminals, drug dealers and money launderers.Read more: Wall Street Stays on Crypto Sidelines as Tesla Boosts BitcoinBut client interest and Bitcoin’s astronomical price gains -- reaching a high of almost $65,000 in April -- have turned many bankers around, with Morgan Stanley making a Bitcoin trust product available to its customers and JPMorgan working on a similar offering.“Goldman Sachs serves as a bellwether of how sophisticated, institutional investors approach shifts in the market,” said Justin Chow, global head of business development for Cumberland DRW. “We’ve seen rapid adoption and interest in crypto from more traditional financial firms this year, and Goldman’s entrance into the space is yet another sign of how it’s maturing.”Banks are still wary of the regulatory challenges of holding Bitcoin outright. As derivatives settled with cash, the products Goldman Sachs is offering don’t require dealing with physical Bitcoin. In a similar way, the Morgan Stanley and JPMorgan trusts give customers access to vehicles tracking Bitcoin’s price while using a third party to buy and hold the underlying digital asset.Goldman Sachs may next offer hedge fund clients exchange-traded notes based on Bitcoin or access to the Grayscale Bitcoin Trust, one of the people said.“The crypto ecosystem is developing rapidly,” Chow said. “There is progress being made in offering ETFs, new custody providers coming online and optimism that regulatory efforts are coming into focus. It’s a great time to be in the space.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
LONDON (Reuters) -BMW remains on course to meet its profit targets for 2021 despite rising raw material costs, though the global chip shortage will worsen and may hit production in the second quarter, the German carmaker said on Friday. Most of the auto industry has been hit by a global semiconductor chip shortage, forcing many assembly plants to shut, driving down inventories and pushing up prices for both new and used vehicles. "We cannot assume that we will emerge from the second quarter unscathed," Chief Executive Officer Oliver Zipse said.
(Bloomberg) -- Jeff Bezos sold about $2.5 billion of Amazon.com Inc. stock, his first big disposal this year after offloading more than $10 billion worth of shares in 2020.Bezos sold around 739,000 shares this week under a pre-arranged trading plan, according to U.S. Securities and Exchange Commission filings. He plans to sell as many as 2 million shares, according to a separate filing.The world’s richest person continues to hold more than 10% of Amazon.com, the primary source of his $191.3 billion fortune, according to the Bloomberg Billionaires Index.In the 15 years after Amazon.com went public in 1997, Bezos sold about a fifth of the online retailer for roughly $2 billion. The value of his stake has ballooned in recent years to such an extent that he can now sell relatively small amounts for billions of dollars.Amazon stock is little changed this year after rallying 76% in 2020 as the Covid-19 pandemic kept people away from physical stores and encouraged online shopping.The Amazon founder has used stock sales to fund rocket company Blue Origin, while he’s committed $10 billion to the “Bezos Earth Fund” to help counter the effects of climate change.The rocket maker said Wednesday it has set July 20 for its first mission carrying people to space and plans to auction off one seat on its New Shepard rocket.Bezos would be far richer if it weren’t for his divorce from MacKenzie Scott. She received a 4% stake in Amazon as part of the split and quickly became one of the world’s most important philanthropists.(Updates with Blue Origin plans in seventh paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
The latest in NYDIG’s year of institutional partnerships has perhaps the broadest potential for financial inclusion in Bitcoin yet.
Lufthansa subsidiary Swiss is cutting its fleet by 15% and its workforce by up to 780 more people, the airline said on Thursday, as it responds to the collapse in passenger numbers caused by the coronavirus pandemic. The airline, which received loan guarantees from the Swiss government worth 1.275 billion Swiss francs ($1.40 billion) last year, said it expects a 20% decrease in demand over the medium term, making restructuring unavoidable. It saw its passenger numbers plunge 90% in the first quarter of 2021, pushing it into a operating loss of 201 million Swiss francs.
(Bloomberg) -- China’s exports rose more than expected in April, suggesting its trade out-performance could last longer than expected this year, fueled by global fiscal stimulus.Exports grew 32.3% in dollar terms in April from a year earlier, the customs administration said Friday, exceeding the 24.1% median estimate in a Bloomberg survey of economists. Imports climbed 43.1%, a sign of strong domestic demand and soaring commodity prices, resulting in a bigger-than-expected trade surplus of $42.85 billion for the month.Global appetite for Chinese goods remained strong in the month, thanks to stimulus packages introduced by developed economies that’s helped to fuel demand for household goods, furniture and electronic devices. With vaccine rollouts accelerating and more economies opening up, China’s export growth was widely expected to moderate this year as consumers start to spend more on services. But April’s data shows that hasn’t happened yet.“The export figure clearly reflects a recovering and expanding global economy,” said Hao Zhou, an economist at Commerzbank AG in Singapore. “Robust imports and exports also mean that China’s manufacturing industry is still outperforming the services sector to lead the economic rebound.”The low base from a year ago also helped to underpin the strong results, but even on a two-year average growth basis which strips out those effects, April’s export growth was 16.8%, much stronger than pre-pandemic levels, according to analysis by Bloomberg Economics.What Bloomberg Economics Says...“Imports were lifted mainly by higher commodity prices, but also due to a recovery in domestic demand. These factors that supported China trade look set to continue in the near term.”-- David Qu, China economistFor the full note click hereThe U.S. was the biggest export market last month, accounting for 15.9% of Chinese goods sold abroad. Southeast Asian nations bought 15.6% of exports while the European Union purchased 15.1%.“We expect China’s export growth will stay strong into the second half of this year,” said Zhang Zhiwei, chief economist at Pinpoint Asset Management Ltd, citing strong growth in U.S. demand and continued coronavirus outbreaks in developing countries such as India causing production to shift to China. Those trends are likely to support China’s currency, he added.Exports were also likely boosted because of a resurgence in coronavirus cases in several developing countries, including India and in Southeast Asia, Lu Ting, chief China economist at Nomura Holdings Inc., wrote in a note. That new wave of infections had a two-fold effect: reducing the competitiveness of these countries and forcing them to buy more medical goods like personal protective equipment from China.Exports to India surged 144% in April from a year earlier with the monthly value hitting a record $7.8 billion.Liu Peiqian, an economist at Natwest Group Plc, cited increased global demand for microchips, where Chinese companies are a key part of the supply chain, as another reason why “exports outperformance will likely remain a key theme” in China’s recovery. In volume terms, imports of industrial metals and energy products softened slightly in April, she added, suggesting that the domestic demand recovery could still be relatively weak.At the Communist Party’s Politburo meeting last week, China’s top leaders pledged to accelerate the recovery in domestic demand and reiterated there would be “no sharp turn” on economic policy. But the government is focused on raising consumer spending on goods and services, while taking a cautious stance on property and infrastructure investment, which tends to be more import-intensive.Read More: Chinese Copper Imports Drop With Scorching Rally Taking TollA strengthening recovery in Chinese consumer spending was indicated by the April services purchasing managers’ index compiled by Caixin Media and IHS Markit, which rose to 56.3 from 54.3 the previous month, well above the 50 reading that marks an expansion from the previous month. However, data from a recent five-day public holiday in China showed spending below pre-pandemic levels, suggesting China will remain dependent on overseas demand for much of its growth this year.Other details:For a breakdown of commodity imports, click here. While the volume of iron ore imports rose 6.7% in January-April compared with the same period in 2020, the value of shipments surged 82.1%Imports were also boosted by the delivery of 24 aircraft in April; on a year-to-date basis, the value of aircraft imports surged 247% from the same period in 2020In yuan terms, exports rose 22.2% in April from a year earlier, higher than the 12.5% forecast by economists in a Bloomberg survey; imports grew 32.2%, below the 33.6% predicted(Updates with record exports to India.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
The British pound has been very noisy on Thursday as the Monetary Policy Committee announced that it was going to taper some of its bond purchases.
(Bloomberg) -- About 8,300 miles east of Wall Street, on a stretch of Bangalore’s Outer Ring Road, sits what was once the heart of the global financial industry’s back office.Before the pandemic, this cluster of glass-and-steel towers housed thousands of employees at firms like Goldman Sachs Group Inc. and UBS Group AG who played critical roles in everything from risk management to customer service and compliance.Now the buildings are eerily empty. And with case counts soaring across Bangalore and much of India, work-from-home arrangements that have sustained Wall Street’s back-office operations for months are coming under intense strain. A growing number of employees are either sick or scrambling to find critical medical supplies such as oxygen for relatives or friends.Standard Chartered Plc said last week that about 800 of its 20,000 staffers in India were infected. As many as 25% of employees in some teams at UBS are absent, said an executive at the firm who spoke on condition of anonymity for fear of losing his job. At Wells Fargo & Co.’s offices in Bangalore and Hyderabad, work on co-branded cards, balance transfers and reward programs is running behind schedule, an executive said.While banks have so far avoided major disruptions by shifting tasks to other offshore hubs, India’s Covid crisis has exposed a little-discussed vulnerability for companies that have spent decades outsourcing functions to the country. India’s outbreak is intensifying even as vaccinations fuel economic recoveries in other parts of the world, heightening fears of a back-office bottleneck at a time when Wall Street firms have rarely been busier.“This is not a local, India-only problem, this is a global crisis,” said D.D. Mishra, senior director analyst at researcher Gartner Inc. The current wave will be “significantly bigger” and organizations with India-based staff “will need to take action to plan for and mitigate if needed,” Mishra and his colleagues wrote in a note last week.Nasscom, the key lobby group for India’s $194 billion outsourcing industry and its almost 5 million employees, has downplayed the threat to operations. But Mishra and fellow analysts at Gartner say they’re fielding a daily flood of calls from anxious global clients asking about the Covid-19 situation.India’s total coronavirus infections have risen to 21.5 million, of which about a third were added since mid-April. The state of Karnataka, whose capital is Bangalore, reported almost 50,000 new infections for a second straight day, with 30% of all results throwing up a positive result.Experts have warned the crisis has the potential to worsen in the coming weeks, with one model predicting as many as 1,018,879 deaths by the end of July, quadrupling from the current official count of 234,083. A model prepared by government advisers suggests the wave could peak in the coming days, but the group’s projections have been changing and were wrong last month.In Bangalore, Delhi and Mumbai, the three main bases for the financial giants’ operations, infection rates have reached such alarming levels that local governments have ordered stringent restrictions on movement.While the crisis has hit swathes of the nation’s $2.9 trillion economy, the latest wave has notably affected the twenty-something segment of the population that dominates outsourcing companies and is hard to replace. Most of them are English-speaking, technically-skilled workers.Continuity PlanningFor now, back-office units are marshaling part-time workers or asking employees to perform multiple roles and re-assigning staff to make up for those who are absent. They are scheduling overtime, deferring low-priority projects and conducting pandemic continuity planning exercises for multiple locations should the virus wave intensify.A Wells Fargo employee said some work is getting transferred to the Philippines, where staff is working overnight shifts to pick up the slack. The San Francisco-based bank employs about 35,000 workers in India to help process car, home and personal loans, make collections, and assist customers who need to open, update or close their bank accounts. The company didn’t respond to a request for comment.An employee at UBS said that with many of the bank’s 8,000 staff in Mumbai, Pune and Hyderabad absent, work is being shipped to centers such as Poland. The Swiss bank’s workers in India handle trade settlement, transaction reporting, investment banking support and wealth management. Many of the tasks require same-day or next-day turnarounds. A UBS representative didn’t respond to a request for comment.With uncertainty surrounding how soon the Indian government will contain the crisis, one executive who asked not to be identified likened the situation to flying blind without any idea how many employees will be affected from one week to the next.Rebalancing Loads“We are looking carefully at how we can rebalance loads,” Standard Chartered Chief Executive Officer Bill Winters said on an earnings call last week, noting that some work has been routed to Kuala Lumpur, Tianjin and Warsaw. “In any case, we think we are very well provided for.”Barclays Plc CEO Jes Staley said some functions were shifted to the U.K. from India. Call volumes have increased and people are distressed, he said, adding that signs of pressure was something to watch for. The bank has 20,000 employees in India.Last year, when a sudden lockdown ordered by Prime Minister Narendra Modi saw these banks scrambling to keep their operations running, the European Banking Authority said the push to outsource support functions “exposed these banks to operational risks.”After asking their employees to work from home en masse last year, most of them have continued to operate at near 100% work-from-home levels. Natwest Group Plc’s workforce in Bangalore, Delhi and the southern city of Chennai -- accounting for a fifth of its global total -- is completely set up to work from home.Management BandwidthSimilarly, thousands of Goldman employees are working from home, doing high-end business tasks such as risk modeling, accounting compliance and app building. A representative for the bank said workflows can be absorbed by the wider team if needed and there’s been no material impact so far.Citigroup Inc. said there’s currently no significant disruption, while Deutsche Bank AG said employees were working seamlessly from home. Morgan Stanley and JPMorgan Chase & Co. detailed relief efforts they are undertaking, but didn’t elaborate on the impact on their operations. Last week, HSBC Holdings Plc Chief Executive Officer Noel Quinn said he’s “watching it closely” and ruled out any material impact at this stage.Besides worrying about disruptions to operations, employee well-being and securing medical help are also taking up a lot of management bandwidth at every large outsourcing unit.At a recent all-hands, virtual corporate strategy team meeting at Accenture Plc, for instance, the talk wasn’t about the usual pay-raises or promotions. Instead, worker after worker demanded flexibility, reduced workloads and no-meeting Fridays, an executive said, asking not to be named discussing internal company matter.Their size has become a hindrance, one executive said, but it’s not clear where else they can go for talent and scale, he added.“We are telling clients they need to relax service levels and reduce expectations for the coming few weeks,” said Mishra, the Gartner analyst. “This not a normal situation.”(Updates infections and deaths in eighth and ninth paragraphs.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- Treasury Secretary Janet Yellen faces the challenge of speeding a debt-ceiling increase through Congress without shaking investor confidence, a potentially difficult task even with Democrats controlling both chambers and the White House.The current suspension of the U.S. borrowing limit expires on Aug. 1, and the Treasury Department on Wednesday cautioned that if Congress fails to act, the administration would have to shift federal funding to make good on debt payments. Officials are looking at scenarios where those accounting measures “could be exhausted much more quickly” than previously, the department said.Even if the Treasury could stave off any default for months, as during past occasions when congressional talks dragged out before a final resolution, investors face the risk of disruption this summer. Officials would likely need to sharply cut sales of Treasury bills, at a time when traders have already complained about scarcity and some auctions have featured yields at 0%.It all poses a negotiating and messaging challenge for Yellen, who this week saw the consequence of a miscue in public communications. Stocks dropped briefly after an unexpected comment on the potential for higher interest rates in order to stem “overheating” risks in the wake of heightened government spending.Read More: Yellen Clarifies Inflation Remark, Sees No Need for Fed to HikeWhile President Joe Biden has relied on a diverse group of White House aides and cabinet members to help sell the March $1.9 trillion pandemic-relief bill and the proposed $4 trillion of longer-term economic measures, responsibility for the debt limit falls squarely on Yellen’s shoulders.The ceiling was suspended under a 2019 agreement between the Trump administration and Congress. It’s been a political football in the past because voting for an increase can invite political attacks over ramping up the debt burden for future generations.Yellen will need Congress to refrain from political brinkmanship and avoid any disruption -- at worst a default or government shutdown -- that would undermine the recovery from the pandemic.Navigating the debt limit debate is also a test of unity within the Democratic Party. With slim majorities in both chambers of Congress, Democrats are widely expected to raise the debt ceiling using a fast-track budget tool enabling them to bypass a Senate Republican filibuster. That would deprive the GOP of being able to use the debt ceiling as leverage in exchange for spending cuts.Yet pushing through a debt-limit increase using that tactic could mean wrapping it together with a raft of spending and tax measures that follow through on Biden’s longer-term economic proposals.Grand CompromiseThat in turn means Democrats would have to unify behind a grand compromise in the weeks after the Aug. 1 end of the debt limit suspension, before Treasury measures run out.“The U.S. is not going to default on its debt, but financial markets will not be fully relieved until we hear from conservative Democrats that they will support raising the debt ceiling,” said Edward Moya, a senior market analyst at OANDA Corp., a trading firm.He referred to the “political theater” of 2011 between Republicans and the Obama administration that led to the shock downgrade of the U.S. sovereign rating by Standard & Poor’s.One complication this year is the unusual pattern of Treasury debt issuance. The department ramped up sales of short-dated securities in 2020 and accumulated a massive $1.8 trillion stockpile of cash to prepare for any Covid-19 spending needs or revenue shortfalls. Now that it’s working that cash down, it’s selling much less in T-bills -- causing ripples in markets.‘Elevated Risks’Those ripples could become a whole lot bigger if the debt limit isn’t raised by July 31.“Elevated risks of volatility in money markets remain as this date approaches and Treasury bills outstanding decline,” a Treasury advisory group made up of investors and bond dealers told Yellen in a letter on Tuesday. The group “strongly urges Congress to suspend or raise the debt limit in a timely manner.”Bharat Ramamurti, deputy director of the National Economic Council, said on Bloomberg TV Wednesday, “Our expectation and our hope is that Congress would do the same” as during Republican administrations, when there were bipartisan votes to raise or suspend the debt limit.Even so, moderate House Democrats facing an uphill battle to keep their seats in the 2022 midterm elections may be reluctant to vote for increasing debt without at least some kind of budget reforms -- such as changing rules to force lawmakers to adopt an annual federal budget or forgo their paychecks.The Treasury probably has until after the start of the 2022 fiscal year on Oct. 1 until “the federal government will no longer be able to meet all its obligations in full and on time,” the Bipartisan Policy Center said in a statement.In a worst-case scenario, there could be a fallback option to buy time. During the Obama administration, the Treasury crafted a secret plan to prioritize debt payments if the U.S. government reached its statutory limit on borrowing. It was widely panned, and never used. But when Brian Smith, the Treasury’s deputy assistant secretary for federal finance, was asked about whether such a blueprint were on the table, he declined to respond.(Adds reference to estimate for end of Treasury’s room to maneuver, in penultimate paragraph. A previous version corrected the third paragraph to show bills hand’t been auctioned at negative yields.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- Discover what’s driving the global economy and what it means for policy makers, businesses, investors and you with The New Economy Daily. Sign up hereBillionaire investor Leon Cooperman said rising inflation will force the Federal Reserve to raise interest rates next year.“I’m assuming they’re going to be surprised by inflation, it’s going to be more intractable,” Cooperman, 78, said in a Bloomberg TV interview Wednesday. “And the market’s going to be surprised that the Fed will raise rates sometime in 2022. They’ll be forced by inflation.”He also said there’s a bubble in the bond market, not the stock market.Cooperman’s family office, Omega Advisors, was previously a hedge fund, and had posted annualized returns of 12.4% since inception, before he stopped managing client cash in 2018 and converted it into a family office. He cashed out investors at a record high.The billionaire investor also touched on potential regulatory fallout from the collapse of family office Archegos Capital Management. Calling himself a “retired money manager,” Cooperman said: “Why they have the right to regulate me is beyond my wildest dreams.” For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- Iron ore and steel climbed to records as Chinese investors unleashed fresh demand following a three-day holiday.Benchmark spot iron ore prices topped $200 a ton for the first time ever, while futures in Singapore and China climbed. Steel demand is surging as economies chart a path back to growth just as the world’s biggest miners have been hampered by operational issues, tightening ore supply.The boom comes as China’s steelmakers keep output rates above 1 billion tons a year, despite a swath of production curbs aimed at reducing carbon emissions and reining in supply. Instead, those measures have boosted steel prices and profitability at mills, allowing them to better accommodate higher iron ore costs.“China’s plan to cut steel output is not showing any success,” RBC Capital Markets analyst Kaan Peker wrote in a note. While steel production outside China has been slow to ramp up, output should start to recover from late in the second quarter, he wrote.Spot iron ore with 62% content hit $201.15 a ton on Thursday, according to Mysteel. Futures in Singapore jumped as much as 5.1% to $196.40 a ton, the highest since contracts were launched in 2013. In Dalian, prices closed 8.8% higher.Read more: Global Steel Demand Seen Rebounding Above Pre-Pandemic LevelsThe rally has more room to run, though prices will likely grind lower during the second half of 2021 as supply improves and demand growth slows, according to Fitch Solutions. There’s also a risk that China could engage in policies that may stymie the rise in iron ore prices abruptly, it said.Iron ore’s surge came as Beijing said Thursday that it was suspending a ministerial economic dialog with Australia. While a largely symbolic move, ties have worsened in recent years and China has hit Australian barley and wine with crippling tariffs and told traders to stop buying commodities including copper, sugar, timber and lobster. So far iron ore has been spared in the spat, as the Asian nation relies on Australia for about 60% of its imports.Read more about what could be next for iron ore’s blistering rallyOn the steel front, rebar closed at the highest since futures started trading in 2009 and hot-rolled coil was at the highest since contracts were launched in 2014.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- BMW AG expects the global shortage of semiconductors hindering automotive production to be resolved as companies and governments zero-in on the issue.“There’s intense focus on the issue globally, so it’s to be expected for supply and demand to be back in balance within two years at the latest,” BMW Chief Executive Officer Oliver Zipse said in an interview Thursday at the company’s driving academy near Munich.A lack of chips used in everything from navigation systems to certain rear-view mirrors has forced carmakers to curtail production just as demand picks up in major economies that are easing pandemic restrictions. While Ford Motor Co. last month estimated the scarcity of semiconductors will slash earnings by $2.5 billion this year, BMW has only reported limited stoppages at two European plants thus far.Zipse’s optimistic view contrasts with some of his carmaking peers. Renault SA CEO Luca De Meo said Thursday the chip crisis has exposed the “frightening” fragility of complicated supply lines where whole industries depend on highly specialized manufacturers. What were valid strategies 20 years ago should be revisited, he said.Volkswagen AG cautioned the semiconductor shortage will become more pronounced in the second quarter, though it still raised its full-year earnings outlook. BMW sent a similarly upbeat message on Friday, saying it expects automotive returns to reach the upper end of its 6% to 8% forecast. Strong demand spreading from China to the U.S. and Europe is helping offset higher prices for raw materials such as copper.BMW shares rose as much as 0.9% shortly after the open of regular trading in Frankfurt.Investment BoomThe chip shortages that arose after consumers snapped up electronic gadgets en masse while confined at home have spurred broad efforts to boost production. The European Commission plans to double the bloc’s chip production to at least 20% of world supply by 2030, a move that would reduce its reliance on foreign companies for the critical components.U.S. President Joe Biden has vowed to better secure America’s supply chain by reviving domestic chip manufacturing. Taiwan Semiconductor Manufacturing Co. will spend as much as $28 billion on new plants and equipment this year.While waiting for investment programs to gather pace, manufacturers have had little choice but to idle plants or take the unusual step of stripping certain high-tech features from select models.Zipse said BMW has no plans to seek new partnerships or joint ventures despite current restraints.“For critical components, we’ll stick with long-term supply contracts and a range of different partners,” he said. This will include battery cells critical to accelerating BMW’s rollout of EVs. “From our point of view, we’ve covered the necessary supplies with long-term contracts.”(Updates with comment from Renault in fourth paragraph, BMW earnings in fifth paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
Air France-KLM sales are showing little sign so far of a travel upturn it still hopes to see by summer, the airline group said on Thursday, as it posted a wider first-quarter operating loss. Air France-KLM said it expects to operate 50% of its pre-pandemic flight capacity in the second quarter under way, ramping up to 55% to 65% in July-September. "We're waiting to see the first effects of vaccination," Chief Financial Officer Frederic Gagey said.
(Bloomberg) -- Qatar’s prosecutor ordered the arrest of Finance Minister Ali Sharif Al-Emadi to question him over alleged abuse of power and misuse of public funds, a state-run news agency said.The country’s ruling emir said he’d relieved Al-Emadi of his office and entrusted his duties to the current Minister of Commerce and Industry, Ali Al Kuwari, according to an announcement released hours after arrest was made public.Al-Emadi was named finance minister a day after Sheikh Tamim bin Hamad Al Thani took over leadership of the country in June 2013, and has held the role since. The prosecutor has launched an investigation, Qatar News Agency said Thursday. No further details were immediately available.The arrest was unusual, because allegations of criminal conduct by senior state officials or members of ruling families in the Gulf are typically addressed behind closed doors. Saudi Arabian Crown Prince Mohammed bin Salman’s declared anti-corruption drive in 2017, which targeted royals and businesspeople, was an exception.Qatar’s dollar bonds held on to most of their earlier gains following the news, with the yield on the securities due 2050 down about 4 basis points to 3.4%. The country’s stock market had already closed for the weekend.Board PositionsAl-Emadi had been a stalwart of Qatar’s financial system, helping to transform Qatar National Bank from a local champion into the region’s biggest lender as its chief executive from 2007 to 2013. He still serves as chairman of the bank’s board, and is also president of the executive board of Qatar Airways, and on the board of Qatar Investment Authority, the country’s sovereign wealth fund.The Financial Times reported that allegations against him concern bribery and commissions related to government contracts, citing a person in Doha who the newspaper said was briefed on the investigation but didn’t name. The investigation is centered on his conduct as minister, and not his other positions, it said.More recently, amid speculation that Al-Emadi had fallen out of favor, he was replaced as chairman of the Qatar Financial Centre -- a platform through which most foreign financial firms working in the country are registered and among agencies that encourage foreign investment.Al Emadi has been regarded as a budget-conscious finance chief, reluctant to raise excess debt even though Qatar’s bond yields are among the lowest in developing economies.At the same time, he’s overseen heavy spending in preparation for the 2022 FIFA World Cup that Qatar is to host. Bloomberg Intelligence estimates the country will plow $300 billion into infrastructure projects ahead of the soccer tournament.(Updates with allocation of duties in second paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.