Month: December 2018

After almost 10 years, Wall Street’s rally looks like it’s ending. 

Another day of big losses Friday left the U.S. market with its worst week in more than seven years. All of the major indexes have lost 16 to 26 percent from their highs this summer and fall. Barring huge gains during the upcoming holiday period, this will be the worst December for stocks since 1931. 

 

There hasn’t been one major shock that has sent stocks plunging. The U.S. economy has been growing since 2009, and most experts think it will keep expanding for now. But it’s likely to do so at a slower pace. 

 

As they look ahead, investors are finding more and more reasons to worry. The U.S. has been locked in a trade dispute with China for nine months. Economies in Europe and China are slowing. And rising interest rates in the U.S. could slow its economy even more. 

Dreadful month

 

Stocks are now headed for their single worst month since October 2008, when the market was being battered by the global financial crisis. 

 

December is generally the strongest time of the year for U.S. stocks. Traders often talk about a “Santa rally” that adds to the year’s gains as people adjust their portfolios in anticipation of the year to come.  

  

But not this year. 

 

No sector of the market has been spared. Large multinational companies join smaller domestic ones in their losses. And huge high-tech companies, once the best-performing stocks on the market, are now leading the way lower.  

  

Technology’s huge popularity during the recent boom years made it even more vulnerable as investors’ moods turn sour. Amazon, Facebook, Apple, Netflix and Google’s parent company, Alphabet, have seen their market values fall by hundreds of billions of dollars. 

 

“If you live by momentum, you die by momentum,” said Sam Stovall, chief investment strategist for CFRA. 

 

The Nasdaq composite, which contains a high concentration of tech stocks, has sunk almost 22 percent from its record high in late August. Several big technology companies, notably Facebook and Twitter, have also suffered as a result of scandals over matters such as data privacy and election meddling, and traders worry that the industry will face greater government regulation that could increase costs and affect their profits. 

 

The major U.S. indexes fell 7 percent this week and they’ve sunk more than 12 percent in December. 

Global slowdown

 

Investors around the world have grown increasingly pessimistic about the global economy’s prospects over the next few years. It’s widely expected to slow down, but traders are concerned the cooling might be worse than they previously believed.  

  

After a sharp early gain Friday, the S&P 500 index retreated 50.84 points, or 2.1 percent, to 2,416.58. The S&P 500, the benchmark for many index funds, has fallen 17.5 percent from its high in September. 

 

The Dow Jones industrial average sank 414.23 points, or 1.8 percent, to 22,445.37. The Nasdaq skidded 195.41 points, or 3 percent, to 6,332.99. The Russell 2000 index of smaller-company stocks lost 33.92 points, or 2.6 percent, to 1,292.09. 

 

European markets rose slightly and Asian markets were mixed.  

  

The price of oil has also fallen sharply in recent weeks, down 40 percent from the high it reached in October, amid concerns over a glut in the market and the slowing economy. 

 

On Friday the price of U.S. crude slipped 0.6 percent to $45.59 a barrel in New York. Brent crude, the standard for international oil prices, fell 1 percent to $53.82 a barrel in London. 
…

The Canadian economy expanded by a greater-than-expected 0.3 percent in October from September, pushed higher by strength in manufacturing, finance and insurance, Statistics Canada data indicated Friday.

Analysts in a Reuters poll had predicted monthly GDP would increase by 0.2 percent. Fifteen of the 20 industrial sectors — which Statscan says represents around 80 percent of the economy — posted gains.

The release could well be a pleasant surprise for Bank of Canada Governor Stephen Poloz, who complained earlier this month that economic data heading into the fourth quarter were weaker than expected.

The manufacturing sector grew by 0.7 percent on higher output of machinery, primary metals, chemicals and food. The finance and insurance sector advanced by 0.9 percent on increased activity in bond and money markets.

Wholesale trade grew by 1.0 percent, while utilities were up 1.5 percent on unseasonably cold weather that contributed to higher electricity demand for heating purposes.
…

The Canadian economy expanded by a greater-than-expected 0.3 percent in October from September, pushed higher by strength in manufacturing, finance and insurance, Statistics Canada data indicated Friday.

Analysts in a Reuters poll had predicted monthly GDP would increase by 0.2 percent. Fifteen of the 20 industrial sectors — which Statscan says represents around 80 percent of the economy — posted gains.

The release could well be a pleasant surprise for Bank of Canada Governor Stephen Poloz, who complained earlier this month that economic data heading into the fourth quarter were weaker than expected.

The manufacturing sector grew by 0.7 percent on higher output of machinery, primary metals, chemicals and food. The finance and insurance sector advanced by 0.9 percent on increased activity in bond and money markets.

Wholesale trade grew by 1.0 percent, while utilities were up 1.5 percent on unseasonably cold weather that contributed to higher electricity demand for heating purposes.
…

Plans to build another privately-financed power station in Nigeria to help end decades of chronic blackouts have been delayed because of concerns about persistent shortfalls in payments for electricity across the sector.

The $1.1 billion Qua Iboe Power Plant being developed by energy infrastructure company Black Rhino and the state-owned Nigerian National Petroleum Corporation won’t get a green light by the end of 2018 as planned and it was unclear when the deal might close, NNPC told Reuters.

The delay is a setback for Africa’s biggest oil producer where 80 million people don’t have access to grid power supplies and it exposes the difficulties in attracting private investment to a sector that successive governments have tried to reform.

The uncertainty surrounding the 540-megawatt Qua Iboe plant stems from the difficulties Nigeria’s first privately-financed independent power project — the 460-megawatt Azura-Edo plant — has encountered since it came online this year.

Azura was meant to be a model for a string of independent power plants financed by international investors. To give them confidence to invest in the first major plant since the power sector was privatized in 2013, the World Bank provided a safeguard known as a partial risk guarantee — meaning the lender would step in if Nigeria defaulted on payments.

Under the current system, the government-owned Nigerian Bulk Electricity Trading company (NBET) buys power from generators and passes it on to distributors who then collect money from customers and reimburse NBET.

But because NBET is not paid in full for the power it buys, generators such as Azura have been partly reimbursed from an emergency central bank loan fund created to keep the sector afloat.

NNPC told Reuters one of the reasons the Qua Iboe plant (QIPP), which is due to be built in the southern state of Akwa Ibom, had been delayed was because NBET appeared reluctant to commit to new projects to avoid increasing its liabilities.

“The continued delay relates to the current cashflow challenges at NBET, as highlighted by the Azura project,” a spokesman for NNPC said in an emailed statement. “This concern is justified by the fact that NBET is yet to see an improvement in collections from DISCOs [distribution companies].”

NBET did not immediately respond to a request for comment on NNPC’s statement about QIPP.

NBET chief executive Marilyn Amobi told Reuters in November that it was hard for the company to work because of poor infrastructure and shortfalls in cash from distributors needed to reimburse generators.

“You don’t have the infrastructure, you don’t have the financial position to do it, you don’t actually have the products, and you don’t have the grid,” she said.

World Bank conditions

NNPC said another problem for QIPP was that the World Bank had made a partial risk guarantee, similar to the one that helped Azura attract investors, contingent on the government’s implementation of an agreed power sector recovery plan.

“In theory it is okay, but the risk is there are delays in the approvals which may impact QIPP,” NNPC said. Power ministry officials and the World Bank have been in talks about long-term structural changes needed to trigger the release of a $1 billion loan to help pay for reforms.

A World Bank spokeswoman said the loan had yet to be submitted to its board for approval and that the Washington-based lender considered the recovery plan to be “critical for de-risking the sector for private investments.”

Problems that need to be tackled include decaying infrastructure, mounting debts, low tariffs for electricity and a dilapidated government-owned grid that would collapse if all the country’s power generators operated at full tilt.

Even though NBET has an agreement to buy 13 gigawatts (GW) from power generators, the system can only cope with distributors sending out an average of 4 GW, according to the ministry of power.

The World Bank spokeswoman confirmed any future guarantees for independent power plants (IPPs) would be linked to the plan’s implementation – because the economic and financial viability of generation capacity expansion was at risk.

A spokeswoman for Black Rhino, which is one of private equity firm Blackstone’s portfolio companies, declined to comment on NNPC’s announcement of a delay to QIPP. When the project was unveiled, Nigerian cement giant Dangote Group was named as a joint venture partner – along with Black Rhino and the Nigerian National Petroleum Corporation.

But a Dangote executive told Reuters on condition of anonymity that the company, owned by Africa’s richest man, Aliko Dangote, had pulled out.

“The huge debt level, and, the fact the IPPs are not making profits, is another reason for prospective investors to be deterred,” he said. “Further, collecting revenue from the distribution companies is also becoming a mirage.”

A Dangote Group spokesman declined to comment on the delay to QIPP, or whether the company had pulled out.

‘Illiquid and insolvent’

The payment problems in the Nigerian power sector were thrust into the spotlight in March when four generating companies filed a lawsuit against the government and Azura.

To ensure the generating companies were paid in full throughout 2017 and 2018, the government created a 701 billion naira ($2.3 billion) loan fund at the central bank to guarantee payments. When the fund was established in 2017, Azura wasn’t part of the calculations.

But when Azura started producing electricity, the fund was also used to pay the new plant to ensure the terms of loan deals guaranteed by the World Bank were not breached. As a result, the other companies were told they would only receive 80 percent of the sums owed, according to the lawsuit filed in March.

The four energy companies want the fund to reimburse them in full, rather than allocating part of the money to the new plant. Azura declined to comment on payments for power generated.

“If the central bank wasn’t paying, the system would collapse,” an official at a multilateral lender said on condition of anonymity. “Qua Iboe IPP would enter a system that is illiquid and insolvent. The liquidity is being provided by the central bank.”

The official said QIPP would need the same partial risk guarantee Azura received to get off the ground, but the handling of payments to Azura by the Nigerian authorities so far meant there was little appetite to offer the same support.

Fola Fagbule, senior vice president and head of advisory at Africa Finance Corporation (AFC) — one of the multilateral lenders that invested in Azura — agreed that the Qua Iboe project would struggle without payment guarantees.

“What you have is an insolvent system,” he said. “It is really difficult to make a case for a project on that scale.”

A person with direct knowledge of QIPP who declined to be named said Azura’s experience was damaging international investors’ view of Nigeria, Africa’s most populous nation.

“There has to be some understanding of how the sector is going to be able to afford new electrons coming into the grid,” the person said. “[Those involved] do not want QIPP to build a project that could just end up in a default situation.”

‘Knotty issues’

Nigeria’s privatized power sector typically does not use meters to provide invoices, bill collections are low and energy tariffs have remained fixed for three years, meaning customers receive unsustainably cheap electricity.

The effect, say industry experts, is that electricity distribution companies recover so little revenue from customers that they pay less than a third of what they owe to generating companies – and that’s why debts have ballooned.

Sunday Oduntan, spokesman for the Association of Nigerian Electricity Distributors, said debt levels in the sector were caused by the artificial suppression of tariffs. He said there was a 1.3 trillion naira ($4.2 billion) market shortfall that meant distributors were unable to invest in improvements.

“You cannot be selling a product below cost price and expect high remittance. The shortfall in the sector is because of the lack of a cost-reflective tariff,” said Oduntan, who speaks on behalf of Nigeria’s 11 electricity distribution companies.

Debts across the sector partly stem from a currency crisis that took hold in 2016, just months after Azura secured its financing. The bulk of power company costs are in U.S. dollars but customers pay for power in naira.

The naira lost about 30 percent of its value against the U.S. dollar in June 2016 but the devaluation was not factored into a government tariff structure that has remained unchanged. Louis Edozien, permanent secretary in the ministry of power, told Reuters there was evidence tariffs must rise, but it was also the responsibility of distributors to improve their collections, partly through better metering and infrastructure.

As for the future of QIPP, the state oil company said it would take six to eight months from whenever NBET executes an agreement to purchase power from the plant before a final investment decision could be taken.

The NNPC spokesman said there were a number of other “knotty issues”, including the completion of a transmission line from the project site. He said QIPP had now agreed in a major concession to pay $20 million for it to be finished.

He also said there was a disagreement between QIPP and the central bank about the exchange rate at which power producers could buy U.S. dollars with naira. He said this had been escalated to the minister of finance.

With the $1 billion World Bank power sector loan on hold for now, the government is considering putting another 600 billion naira into the central bank fund to pay generators when the initial amount runs out early next year, sources said.

It was not clear how the central bank loans to the sector would be repaid.

Central Bank Governor Godwin Emefiele told Reuters that payments from the fund could be made up to February and that the bank was holding talks with World Bank officials.

“The loan negotiations are still in progress with no terminal date yet fixed,” the power ministry’s Edozien said.

($1 = 306.6000 naira)
…

Plans to build another privately-financed power station in Nigeria to help end decades of chronic blackouts have been delayed because of concerns about persistent shortfalls in payments for electricity across the sector.

The $1.1 billion Qua Iboe Power Plant being developed by energy infrastructure company Black Rhino and the state-owned Nigerian National Petroleum Corporation won’t get a green light by the end of 2018 as planned and it was unclear when the deal might close, NNPC told Reuters.

The delay is a setback for Africa’s biggest oil producer where 80 million people don’t have access to grid power supplies and it exposes the difficulties in attracting private investment to a sector that successive governments have tried to reform.

The uncertainty surrounding the 540-megawatt Qua Iboe plant stems from the difficulties Nigeria’s first privately-financed independent power project — the 460-megawatt Azura-Edo plant — has encountered since it came online this year.

Azura was meant to be a model for a string of independent power plants financed by international investors. To give them confidence to invest in the first major plant since the power sector was privatized in 2013, the World Bank provided a safeguard known as a partial risk guarantee — meaning the lender would step in if Nigeria defaulted on payments.

Under the current system, the government-owned Nigerian Bulk Electricity Trading company (NBET) buys power from generators and passes it on to distributors who then collect money from customers and reimburse NBET.

But because NBET is not paid in full for the power it buys, generators such as Azura have been partly reimbursed from an emergency central bank loan fund created to keep the sector afloat.

NNPC told Reuters one of the reasons the Qua Iboe plant (QIPP), which is due to be built in the southern state of Akwa Ibom, had been delayed was because NBET appeared reluctant to commit to new projects to avoid increasing its liabilities.

“The continued delay relates to the current cashflow challenges at NBET, as highlighted by the Azura project,” a spokesman for NNPC said in an emailed statement. “This concern is justified by the fact that NBET is yet to see an improvement in collections from DISCOs [distribution companies].”

NBET did not immediately respond to a request for comment on NNPC’s statement about QIPP.

NBET chief executive Marilyn Amobi told Reuters in November that it was hard for the company to work because of poor infrastructure and shortfalls in cash from distributors needed to reimburse generators.

“You don’t have the infrastructure, you don’t have the financial position to do it, you don’t actually have the products, and you don’t have the grid,” she said.

World Bank conditions

NNPC said another problem for QIPP was that the World Bank had made a partial risk guarantee, similar to the one that helped Azura attract investors, contingent on the government’s implementation of an agreed power sector recovery plan.

“In theory it is okay, but the risk is there are delays in the approvals which may impact QIPP,” NNPC said. Power ministry officials and the World Bank have been in talks about long-term structural changes needed to trigger the release of a $1 billion loan to help pay for reforms.

A World Bank spokeswoman said the loan had yet to be submitted to its board for approval and that the Washington-based lender considered the recovery plan to be “critical for de-risking the sector for private investments.”

Problems that need to be tackled include decaying infrastructure, mounting debts, low tariffs for electricity and a dilapidated government-owned grid that would collapse if all the country’s power generators operated at full tilt.

Even though NBET has an agreement to buy 13 gigawatts (GW) from power generators, the system can only cope with distributors sending out an average of 4 GW, according to the ministry of power.

The World Bank spokeswoman confirmed any future guarantees for independent power plants (IPPs) would be linked to the plan’s implementation – because the economic and financial viability of generation capacity expansion was at risk.

A spokeswoman for Black Rhino, which is one of private equity firm Blackstone’s portfolio companies, declined to comment on NNPC’s announcement of a delay to QIPP. When the project was unveiled, Nigerian cement giant Dangote Group was named as a joint venture partner – along with Black Rhino and the Nigerian National Petroleum Corporation.

But a Dangote executive told Reuters on condition of anonymity that the company, owned by Africa’s richest man, Aliko Dangote, had pulled out.

“The huge debt level, and, the fact the IPPs are not making profits, is another reason for prospective investors to be deterred,” he said. “Further, collecting revenue from the distribution companies is also becoming a mirage.”

A Dangote Group spokesman declined to comment on the delay to QIPP, or whether the company had pulled out.

‘Illiquid and insolvent’

The payment problems in the Nigerian power sector were thrust into the spotlight in March when four generating companies filed a lawsuit against the government and Azura.

To ensure the generating companies were paid in full throughout 2017 and 2018, the government created a 701 billion naira ($2.3 billion) loan fund at the central bank to guarantee payments. When the fund was established in 2017, Azura wasn’t part of the calculations.

But when Azura started producing electricity, the fund was also used to pay the new plant to ensure the terms of loan deals guaranteed by the World Bank were not breached. As a result, the other companies were told they would only receive 80 percent of the sums owed, according to the lawsuit filed in March.

The four energy companies want the fund to reimburse them in full, rather than allocating part of the money to the new plant. Azura declined to comment on payments for power generated.

“If the central bank wasn’t paying, the system would collapse,” an official at a multilateral lender said on condition of anonymity. “Qua Iboe IPP would enter a system that is illiquid and insolvent. The liquidity is being provided by the central bank.”

The official said QIPP would need the same partial risk guarantee Azura received to get off the ground, but the handling of payments to Azura by the Nigerian authorities so far meant there was little appetite to offer the same support.

Fola Fagbule, senior vice president and head of advisory at Africa Finance Corporation (AFC) — one of the multilateral lenders that invested in Azura — agreed that the Qua Iboe project would struggle without payment guarantees.

“What you have is an insolvent system,” he said. “It is really difficult to make a case for a project on that scale.”

A person with direct knowledge of QIPP who declined to be named said Azura’s experience was damaging international investors’ view of Nigeria, Africa’s most populous nation.

“There has to be some understanding of how the sector is going to be able to afford new electrons coming into the grid,” the person said. “[Those involved] do not want QIPP to build a project that could just end up in a default situation.”

‘Knotty issues’

Nigeria’s privatized power sector typically does not use meters to provide invoices, bill collections are low and energy tariffs have remained fixed for three years, meaning customers receive unsustainably cheap electricity.

The effect, say industry experts, is that electricity distribution companies recover so little revenue from customers that they pay less than a third of what they owe to generating companies – and that’s why debts have ballooned.

Sunday Oduntan, spokesman for the Association of Nigerian Electricity Distributors, said debt levels in the sector were caused by the artificial suppression of tariffs. He said there was a 1.3 trillion naira ($4.2 billion) market shortfall that meant distributors were unable to invest in improvements.

“You cannot be selling a product below cost price and expect high remittance. The shortfall in the sector is because of the lack of a cost-reflective tariff,” said Oduntan, who speaks on behalf of Nigeria’s 11 electricity distribution companies.

Debts across the sector partly stem from a currency crisis that took hold in 2016, just months after Azura secured its financing. The bulk of power company costs are in U.S. dollars but customers pay for power in naira.

The naira lost about 30 percent of its value against the U.S. dollar in June 2016 but the devaluation was not factored into a government tariff structure that has remained unchanged. Louis Edozien, permanent secretary in the ministry of power, told Reuters there was evidence tariffs must rise, but it was also the responsibility of distributors to improve their collections, partly through better metering and infrastructure.

As for the future of QIPP, the state oil company said it would take six to eight months from whenever NBET executes an agreement to purchase power from the plant before a final investment decision could be taken.

The NNPC spokesman said there were a number of other “knotty issues”, including the completion of a transmission line from the project site. He said QIPP had now agreed in a major concession to pay $20 million for it to be finished.

He also said there was a disagreement between QIPP and the central bank about the exchange rate at which power producers could buy U.S. dollars with naira. He said this had been escalated to the minister of finance.

With the $1 billion World Bank power sector loan on hold for now, the government is considering putting another 600 billion naira into the central bank fund to pay generators when the initial amount runs out early next year, sources said.

It was not clear how the central bank loans to the sector would be repaid.

Central Bank Governor Godwin Emefiele told Reuters that payments from the fund could be made up to February and that the bank was holding talks with World Bank officials.

“The loan negotiations are still in progress with no terminal date yet fixed,” the power ministry’s Edozien said.

($1 = 306.6000 naira)
…

It was another miserable day on Wall Street as a series of big December plunges continued, putting stocks on track for their worst month in a decade.

The Dow Jones Industrial Average dropped 464 points Thursday, bringing its losses to more than 1,700 points since Friday.

The benchmark S&P 500 index has slumped 10.6 percent this month and is almost 16 percent below the peak it reached in late September.

The steady gains of this spring and summer now fell like a distant memory. As we’ve entered the fall, investors started to worry that global economic growth is cooling off and that the U.S. could slip into a recession in the next few years. The S&P 500 is on track for its first annual loss in a decade.

The technology stocks that have led the market in recent years are now dragging it down. The technology-heavy Nasdaq composite is now down 19.5 percent from the record high it reached in August.

The market swoon is coming even as the U.S. economy is on track to expand this year at the fastest pace in 13 years. Markets tend to move, however, on what investors anticipate will happen well into the future, so it’s not uncommon for stocks to sink even when the economy is humming along.

Slowing economy a concern

Right now, markets are concerned about the potential for a slowing economy and two threats that could make the situation worse: the ongoing trade dispute between the U.S. and China, which has lasted most of this year, and rising interest rates, which act as a brake on economic growth by making it more expensive for businesses and individuals to borrow money.

The selling in the last two days came after the Federal Reserve raised interest rates for the fourth time this year and signaled it was likely to continue raising rates next year, although at a slower rate than it previously forecast.

Scott Wren, senior global equity strategist at Wells Fargo Investment Institute, said investors felt Fed Chairman Jerome Powell came off as unconcerned about the state of the U.S. economy, despite deepening worries on Wall Street that growth could slow even more in 2019 and 2020. Wren said investors want to know that the Fed is keeping a close eye on the situation.

“He may be a little overconfident,” said Wren. “The Fed needs to be paying attention to what’s going on.”

Powell also acknowledged that the Fed’s decisions are getting trickier because they need to be based on the most up-to-date figures on jobs, inflation, and economic growth. For the last three years the Fed told investors weeks in advance that it was almost certain to increase rates. But things are less certain now, and the market hates uncertainty

‘Completely overblown’

Treasury Secretary Steven Mnuchin said the market’s reaction to the Fed was “completely overblown.”

Investors have responded to a weakening outlook for the U.S. economy by selling stocks and buying ultra-safe U.S. government bonds. The bond-buying has the effect of sending long-term bond yields lower, which reduces interest rates on mortgages and other kinds of long-term loans. That’s generally good for the economy.

At the same time, the reduced bond yields can send a negative signal on the economy. Sharp drops in long-term bond yields are often seen as precursors to recessions.

The S&P 500 index skidded 39.54 points, or 1.6 percent, to 2,467.42. The Dow fell 464.06 points, or 2 percent, to 22,859.60 after sinking as much as 679.

The Nasdaq fell 108.42 points, or 1.6 percent, to 6,528.41. The Russell 2000 index of smaller companies dropped another 23.23 points, or 1.7 percent, to 1,326.

Stocks for smaller companies suffer

Smaller company stocks have been crushed during the recent market slump because slower growth in the U.S. will have an outsize effect on their profits. Relative to their size, they also tend to carry more debt than larger companies, which could be a problem in a slower economy with higher interest rates.

The Russell 2000 is down almost 24 percent from the peak it reached in late August and it’s down 13.6 percent for the year to date. The S&P 500, which tracks larger companies, is down 7.7 percent.

The possibility of a partial shutdown of the federal government also loomed over the market on Thursday, as funding for the government runs out at midnight Friday. In general, shutdowns don’t affect the U.S. economy or the market much unless they stretch out for several weeks, which would delay paychecks for federal employees.

Oil prices still dropping 

Oil prices continued to retreat. Benchmark U.S. crude fell 4.8 percent to $45.88 a barrel in New York, and it’s dropped 40 percent since early October. Brent crude, used to price international oils, slipped 5 percent to $54.35 a barrel in London.

After early gains, bond prices headed lower. The yield on the two-year Treasury rose to 2.87 percent from 2.65 percent, while the 10-year note rose to 2.80 percent from 2.77 percent.

The gap between those two yields has shrunk this year. When the 10-year yield falls below the two-year yield, investors call it an “inverted yield curve.” That hasn’t happened yet, but investors fear it will. Inversions are often taken as a sign a recession is coming, although it’s not a perfect signal and when recessions do follow inversions in the yield curve, it can take a year or more.

“The bond market has been telling us something for about a year, and that is there’s not going to be much inflation and there’s not going to be a sustained surge in economic growth,” said Wren, of Wells Fargo.

Around the world

In France, the CAC 40 lost 1.8 percent and Germany’s DAX fell 1.4 percent. The British FTSE 100 slipped 0.8 percent. Indexes in Italy, Portugal and Spain took bigger losses.

Tokyo’s Nikkei 225 lost 2.8 percent and Hong Kong’s Hang Seng gave up 1 percent. Seoul’s Kospi shed 0.9 percent.

As investors adjusted to the prospect of a weaker economy and lower long-term interest rates, the dollar fell to 111.11 yen from 112.36 yen. The euro rose to $1.1469 from $1.1368.

The British pound rose to $1.2671 from $1.2621. That sent the price of gold higher, and it gained 0.9 percent to $1,267.9 an ounce. Silver rose 0.3 percent to $14.87 an ounce and copper, which is considered an indicator of economic growth, fell 0.7 percent to $2.70 a pound.

Other fuel prices also fell. Wholesale gasoline lost 4.6 percent to $1.32 a gallon and heating oil slid 3.1 percent to $1.75 a gallon. Natural gas gave up 3.8 percent to $3.58 per 1,000 cubic feet. 
…

The U.S.-China trade war is spooking potential investors in soybean crushing plants planned for Wisconsin and New York state, developers said, casting doubt on the future of a sector that had been a rare bright spot in the U.S. farm economy.

Crushers in the United States have been posting near-record profits by snapping up cheap and plentiful soybeans no longer purchased by China and making soymeal and soy oil for export to Europe and Southeast Asia.

But margins are not predictable as the United States and China attempt to resolve their trade differences before a March 2 deadline, adding another puzzle as investors parse out the costs and impacts of a trade dispute between the world’s two largest economies.

WSBCP LLC, or the Wisconsin Soybean Crushing Plant, is struggling to find backers for the state’s first soy processing facility because of uncertainty in agricultural and financial markets over the trade conflict, said Phil Martini, chief executive of industrial contractor C.R. Meyer & Sons Co, who is overseeing the project.

“I’m not a mental giant, but it doesn’t take one to think people are uncertain about what’s going on,” Martini said. “The crush margin is very good, but it can go the other way.”

China bought about 60 percent of U.S. raw soybean exports last year in deals worth $12 billion, but has mostly been buying beans from Brazil since imposing a 25 percent tariff on American soybeans in July in retaliation for U.S. tariffs on Chinese goods.

U.S. President Donald Trump and his Chinese counterpart Xi Jinping agreed on Dec. 1 not to impose additional tariffs for 90 days, a truce that spurred Chinese purchases of a few million tons of U.S. soybeans this month.

It is unclear when or if Beijing will remove its soy tariff, a move that would spur more deals and lift U.S. soybean prices in a boon to U.S. farmers and a blow to crushing margins.

Construction on the $150 million plant in Waupun, Wisconsin, is set to begin in 2019, with a projected opening in 2020, according to a June statement from the city, which owns the land where the facility would be located.

Martini said it remains to be seen whether the timetable needs to be postponed. He is also looking for livestock producers to commit to buying the plant’s products.

Kathy Schlieve, Waupun’s economic director, said the project would likely be delayed because the investor pool is not finalized.

“It’s different dynamic and we’re really trying to understand that,” Schlieve said about the trade war.

Shift from 2017

The uncertainty is a turnaround from last year when farmer-owned agricultural cooperatives were building new soybean crushing plants at the fastest rate in two decades after several years of large crops.

U.S. grain merchant Archer Daniels Midland Co set a new record for crush volumes in the third quarter and benefited from strong margins.

But after months of soybean futures prices hovering around 10-year lows due to the lack of Chinese buying, farmers have little room for new ventures.

“There isn’t a lot of extra money out there to invest in something like that,” said John Heisdorffer, an Iowa farmer and chairman of the American Soybean Association.

New York plant

The trade war also prolonged the search for investors for a $54 million soybean crushing plant that St. Lawrence Soyway Company is planning for Massena, New York, near the border with Canada, CEO Doug Fisher said.

Fisher tried to win over investors worried by the trade war with charts and graphs showing how the conflict improved margins for U.S. crushing plants.

“These tariffs with China rattle them, when in fact they have increased crush plant profits,” Fisher said.

As of Wednesday, the company had raised about 85 percent of the total, Fisher said.

St. Lawrence Soyway’s plant is projected to process soybeans into feed for dairy cows. The livestock industry has also been hit by Chinese tariffs on dairy products and pork, though.

“As those farmers are not doing as well, their ability to buy meal at higher prices is not there,” Fisher said.
…

A state of emergency has been declared in two eastern Sudan states after at least eight protesters were killed in mass demonstrations against rising prices.

Thousands of protesters marched in cities and towns across Sudan Thursday, angry over widespread corruption and the rising costs of basic goods, including bread.

Eyewitnesses in al-Qadarif said men wearing uniforms were among the protesters. Prices for food have skyrocketed in recent months, with inflation topping 60 percent. This comes after the government cut subsidies earlier this year.

Protesters there torched government buildings, including the headquarters of the ruling National Congress Party. Eyewitnesses in Atbara say the building was burned to the ground.

States of emergency were declared in the cities of al-Qadarif and Atbara.

Some of the Sudanese protesters are demanding a regime change. Many say they cannot earn a living or pay for basic needs like bread and fuel.

A Khartoum resident said students were planning to stage more protests Thursday around Khartoum University, but government security agents intervened and the students were ordered off the streets.

Police fired tear gas at hundreds of protesters within a kilometer of the presidential palace in Khartoum. Demonstrations were reported in Atbara, Port Sudan, Barbar, Nohoud and other cities.

The economy has deteriorated over the past several years after South Sudan became independent, depriving Khartoum of much of its oil revenue.

Carol Van Dam Falk and Kenneth Schwartz contributed.
…

The independent U.S. central bank raised borrowing rates Wednesday for the fourth time this year, dismissing President Donald Trump’s contention that policymakers ought not tinker with the country’s robust economy, the world’s largest. 

 

The Federal Reserve board voted 10-0 after a two-day meeting to increase its benchmark short-term interest rate — which is the rate that banks charge each other on overnight loans to meet reserve minimums — by a quarter percentage point to a range of 2.25 percent to 2.5 percent, its highest point in a decade.  

 

But the Fed also took note of clouds on the horizon for the U.S. economy, saying it expected to increase rates again only twice in 2019, not three times as it had previously projected.

It also cut its 2019 economic growth forecast for the U.S. from 2.5 percent to 2.3 percent, both figures well off the 4.2 percent U.S. growth in the April-to-June period and the 3.5 percent figure from July to September. 

Stock prices have sunk 

 

Policymakers said they would closely watch “global economic and financial market developments and assess their implications for the economic outlook.” In the last several weeks, stock market indexes in the U.S. and elsewhere have fallen sharply, a plunge for some U.S. market indicators that wiped out all previous 2018 gains. 

 

The interest rate set by the Fed often affects borrowing costs throughout the U.S., for major corporations and consumers, and often sets the standard for global lending rates. 

 

Trump had no immediate comment on the latest boost in interest rates, but earlier in the week implored policymakers to forgo another increase: 

But central bank policymakers operate independently of White House oversight, and Wednesday’s quarter-point increase had been widely expected.

Trump has basked in a robust U.S. economy, even as numerous investigations engulf him and his 2016 presidential campaign, and key advisers have quit his administration or been forced out.

U.S. trade disputes are ongoing with China, and world stock market volatility has cut investor gains in recent weeks. But the 3.7 percent jobless rate is the lowest in the United States in 49 years, worker wages are increasing and consumers — whose activity accounts for about 70 percent of the U.S. economy — are spending. 

​Unhappy with Powell

But Jerome Powell, the Fed board member Trump named a year ago as chairman, had drawn the president’s ire by overseeing three interest rate hikes this year ahead of the latest one.

Trump last month said he was “not even a little bit happy” with his appointment of Powell.

Trump has said he thinks the Fed is “way off base” by raising rates, but has been powerless to stop it from boosting them. Central bank policymakers have raised interest rates to keep the inflation rate in check and keep the economy from expanding too rapidly. 

“I’m doing deals and I’m not being accommodated by the Fed,” Trump told The Washington Post last month. “They’re making a mistake because I have a gut and my gut tells me more sometimes than anybody else’s brain can ever tell me.”

Some economists are predicting, however, that the decade-long improving U.S. economy could stall in the next year or so and perhaps even fall into a recession, which, if it occurs, would in most circumstances call for cutting interest rates to boost economic activity. 
…

The independent U.S. central bank raised borrowing rates Wednesday for the fourth time this year, dismissing President Donald Trump’s contention that policymakers ought not tinker with the country’s robust economy, the world’s largest. 

 

The Federal Reserve board voted 10-0 after a two-day meeting to increase its benchmark short-term interest rate — which is the rate that banks charge each other on overnight loans to meet reserve minimums — by a quarter percentage point to a range of 2.25 percent to 2.5 percent, its highest point in a decade.  

 

But the Fed also took note of clouds on the horizon for the U.S. economy, saying it expected to increase rates again only twice in 2019, not three times as it had previously projected.

It also cut its 2019 economic growth forecast for the U.S. from 2.5 percent to 2.3 percent, both figures well off the 4.2 percent U.S. growth in the April-to-June period and the 3.5 percent figure from July to September. 

Stock prices have sunk 

 

Policymakers said they would closely watch “global economic and financial market developments and assess their implications for the economic outlook.” In the last several weeks, stock market indexes in the U.S. and elsewhere have fallen sharply, a plunge for some U.S. market indicators that wiped out all previous 2018 gains. 

 

The interest rate set by the Fed often affects borrowing costs throughout the U.S., for major corporations and consumers, and often sets the standard for global lending rates. 

 

Trump had no immediate comment on the latest boost in interest rates, but earlier in the week implored policymakers to forgo another increase: 

But central bank policymakers operate independently of White House oversight, and Wednesday’s quarter-point increase had been widely expected.

Trump has basked in a robust U.S. economy, even as numerous investigations engulf him and his 2016 presidential campaign, and key advisers have quit his administration or been forced out.

U.S. trade disputes are ongoing with China, and world stock market volatility has cut investor gains in recent weeks. But the 3.7 percent jobless rate is the lowest in the United States in 49 years, worker wages are increasing and consumers — whose activity accounts for about 70 percent of the U.S. economy — are spending. 

​Unhappy with Powell

But Jerome Powell, the Fed board member Trump named a year ago as chairman, had drawn the president’s ire by overseeing three interest rate hikes this year ahead of the latest one.

Trump last month said he was “not even a little bit happy” with his appointment of Powell.

Trump has said he thinks the Fed is “way off base” by raising rates, but has been powerless to stop it from boosting them. Central bank policymakers have raised interest rates to keep the inflation rate in check and keep the economy from expanding too rapidly. 

“I’m doing deals and I’m not being accommodated by the Fed,” Trump told The Washington Post last month. “They’re making a mistake because I have a gut and my gut tells me more sometimes than anybody else’s brain can ever tell me.”

Some economists are predicting, however, that the decade-long improving U.S. economy could stall in the next year or so and perhaps even fall into a recession, which, if it occurs, would in most circumstances call for cutting interest rates to boost economic activity. 
…