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Glencore says full-year results ‘best ever’

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Glencore on Wednesday announced full-year overall adjusted profit of $14.76 billion, in line with expectations, and said its full-year marketing adjusted EBIT was $3 billion, above the range it flagged at the end of last year.

Chief Executive Ivan Glasenberg in a statement said the performance was the company’s “strongest on record, driven by our leading marketing and industrial asset businesses.”

A consensus of analysts compiled by Thomson Reuters I/B/E/S forecast EBITDA (earnings before interest, tax, depreciation and amortisation) of $14.67 billion.

Miner and trader Glencore in December in an update for investors said its 2017 marketing EBIT (earnings before interest and tax) would be at the top end of its previous guidance at $2.8 billion.

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Tourism-dependent Maldives steps up economic diversification effort

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NurPhoto | NurPhoto | Getty Images

Dotted with island resorts and endowed with white sandy beaches and turquoise seas, the Maldives has always billed itself as a top tourist destination.

But the coronavirus pandemic brought the global travel and tourism industry to a grinding halt last year, forcing the island-nation to step up economic diversification efforts by expanding other sectors.

Tourism accounts for over 28% of gross domestic product in the small archipelago and brings in about 60% of foreign exchange receipts, according to the Michigan State University.

“As an economy heavily dependent on international tourism, the restrictions on global travel and other protective measures against the Covid-19 pandemic have had significant impact on the Maldives,” President Ibrahim Mohamed Solih told CNBC in a recent interview.

The Maldives last year closed its borders between March to July, which temporarily shut down the tourism sector that resulted in thousands of workers being laid off. Some of them lost their jobs permanently. It led to a drastic shortfall in foreign exchange receipts that the Maldives relies on to pay for imports.

“The closing of borders meant that tourist arrivals was effectively nil during that period, a first since modern day tourism began in the late 1970s,” Solih said by email.

Last year, the Maldives welcomed a little over half-a-million tourists. That’s a 67.4% plunge in tourist arrivals from 2019, which saw 1.7 million visitors come through.

Diversification

Maldives reopened its borders in mid-July but tourist arrivals have yet to reach pre-pandemic levels.

Solih said he was optimistic and pointed out that by mid-December, 100,000 people had already visited the island-nation since borders reopened.

Tourists are given 30-day on-arrival visas. Quarantine is not mandatory if they complete an online health declaration form and show negative results for pre-departure polymerase chain reaction (PCR) tests, which are widely used to detect Covid.

With about 1,200 islands throughout the country, it’s possible for social distancing among tourists as each island operates like its own resort.

Still, more than 19,500 people in the country — or a little under 4% of the population — have tested positive for the coronavirus and 61 of them died, according to Johns Hopkins University data.

While the tourism sector recovers, the Maldives is also working to boost other sectors of the economy, according to Solih.

“We’re currently working on economic diversification through expanding the fisheries and agricultural sectors, establishing a decentralized network to provide public services,” he said.

The president added that the country is also working on initiatives that factor in Maldives’ nature conservation and climate action.

Tackling climate change is high on the government’s agenda as rising sea levels pose physical vulnerabilities to the island-state.

Economic measures

Solih said his government responded to the economic crisis through various measures including income support, loans for struggling businesses with interest-free grace period, and the delay of debt payments for individuals, households and companies.

The Maldives received temporary suspension of its debt-service payments owed to creditors through the G-20’s Debt Service Suspension Initiative until the middle of this year. It was also granted debt moratorium by other major development partners that allowed the government to redirect $24 million to its Covid response efforts, according to the president.

“We are in ongoing discussion with creditors to seek additional debt service suspensions where possible,” Solih said.

Still, fiscal deficit remains a point of concern. Ratings agency Fitch downgraded the Maldives from “B” to “CCC” in November and said it expects a sharp increase in the country’s debt burden due to the Covid shock and continued debt-funded infrastructure spending.

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Fed policy changes could be coming in response to bond market turmoil, economists say

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Joggers pass the Marriner S. Eccles Federal Reserve building in Washington, D.C., on Tuesday, Aug. 18, 2020.

Erin Scott | Bloomberg | Getty Images

While the Federal Reserve may not raise its benchmark interest rate for years, there are growing expectations it may tweak policy soon to address some of the recent tumult in the bond market.

The moves could happen as soon as the upcoming March 16-17 Federal Open Market Committee meeting, according to investors and economists who are watching recent action closely and expect the central bank to address some distortions that have occurred.

One possible move would the third iteration of Operation Twist, a move the Fed last made nearly a decade ago during market tumult around the time of the European debt crisis. Another could see an increase in the rate paid on reserves to address issues in the money markets, while the Fed also might adjust the rate on overnight repo operations in the bond market.

The mechanics of Operation Twist involve selling shorter-dated government notes and buying about the same dollar amount in longer-duration securities. The objective is to nudge up shorter-term rates and drive down those at the longer end, thus flattening the yield curve.

The Fed ran the program both in 2011 and in 1961; a market participant familiar with the Fed’s operations said central bank officials have been in contact with primary dealers to gauge the need for some intervention.

‘The perfect policy prescription’

Longer-term bond yields have surged over the past two weeks to levels not seen since before the Covid-19 pandemic. While they remain low historically speaking, markets have been concerned over the pace of the increase. The bond market was clam Monday, with rates in the middle of the curve mostly lower.

Implementing the scheme could help soothe some of the jangled nerves that accompanied a recent blast higher in interest rates from 5-year notes on up the curve. The “twist” is a nod toward adjusting the duration of its purchases to the longer end, and the buying and selling of equal weights mean the Fed’s already bloated $7.5 trillion balance sheet won’t be expanded further.

“The Fed is simultaneously losing control of both the US front end & back end rates curves for different reasons,” Mark Cabana, rates strategist at Bank of America Global Research, said in a note to clients. “Twist, a simultaneous selling of US front end Treasuries & buying of longer-dated [bonds], is the perfect policy prescription for the Fed, in our view.”

Cabana said the move “kills three birds with one stone.” Namely, it raises rates on the short end of the duration spectrum, provides stability on the back end and does not expand the balance sheet and thus require banks to hold more capital.

“We believe no other Fed balance sheet option can address each of these issues as effectively,” he wrote. “To be clear the Fed will twist to deal with market functioning issues, not economic problems.”

Indeed, the Fed is welcoming some upward pressure on yields as it reflects a growing economy and rising inflation expectations toward the central bank’s 2% goal.

However, the trend presents some issues for the Fed that a weak 7-year note auction last week helped demonstrate. The Fed needs bond auctions to go well as a surge in supply is on the way from a federal government running what is expected to be a deficit of at least $2.3 trillion this year.

Investors tend to shy away from longer-dated bonds during time of inflation as their rates can’t keep up and cause bond holders to lose principal. That’s why Cabana expects the Fed to sell $80 billion a month in Treasury bills and use it to buy bonds of duration past four and a half years.

FOMC members at their November meeting discussed market expectations that the central bank would begin to lengthen the average duration of its purchases. Members endorsed “ongoing careful consideration” of the composition of its bond holdings.

“Participants noted that the Committee could provide more accommodation, if appropriate, by increasing the pace of purchases or by shifting its Treasury purchases to those with a longer maturity without increasing the size of its purchases,” the minutes from that meeting stated.

Raising rates on reserves and repo

There are other issues in the market, and that’s why the Fed’s actions may not be limited to Operation Twist.

One other move it could do is increase the interest on excess reserves rate from 0.1% to 0.15%. Though there essentially are no excess reserves now due to the Fed dropping the minimum during the Covid-19 crisis, the IOER serves as a guardrail for some short-term rates, which is important to money market funds that have had to buy bills at negative real rates.

“The Fed essentially has to place a raised floor in the U.S. economy to keep things that need positive returns alive,” said Fed veteran Christopher Whalen, head of Whalen Global Advisory.

While he said he understands the IOER move, Whalen said he is skeptical of how successful the Fed will be with implementing Twist.

“No matter how well-intentioned they are, their efforts to engineer things are slowly weakening the system,” he said. “You have another bad auction or two and we’re screwed.”

Still, Cabana said expects the Fed to begin signaling the additional moves as soon as this week. Chairman Jerome Powell speaks Thursday during a Wall Street Journal event, and a slew of other Fed officials also are on tap to share their views this week.

Markets worried over how things are running likely will welcome the Fed’s moves, said Joseph Brusuelas, chief economist at RSM.

In addition to the Twist implementation and adjustment on IOER, Brusuelas thinks the Fed also will increase the rate it pays on overnight repo operations from zero basis points to five.

While Brusuelas said markets expected rising rates this year, “what we didn’t expect was an overreaction to the reflation of the domestic economy in the fixed income market. That clearly has gotten the attention of the Fed.”

“The market would welcome the lifting of the IOER as well as any communication that it intends to twist the curve down to keep the economy on track,” he added.

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Stocks rise following overnight gains on Wall Street

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SINGAPORE — Stocks in Asia-Pacific traded higher on Tuesday morning following strong gains overnight for shares on Wall Street.

South Korea’s Kospi surged 2.61%, following its return from a Monday holiday. In Japan, the Nikkei 225 gained 0.71% while the Topix index advanced 0.33%.

Meanwhile, shares in Australia rose as the S&P/ASX 200 gained 0.75%. The Reserve Bank of Australia is set to announce its interest rate decision at around 11:30 a.m. HK/SIN on Tuesday.

MSCI’s broadest index of Asia-Pacific shares outside Japan traded 0.55% higher.

Wall Street surge

Overnight stateside, the Dow Jones Industrial Average soared 603.14 points to close at 31,535.51 while the S&P 500 advanced 2.38% to finish its trading day at 3,901.82. The Nasdaq Composite jumped 3.01% to close at 13,588.83.

The moves came as the benchmark 10-year U.S. Treasury note yield declined, following a surge last week. The yield on the 10-year was last at 1.4255%.

Currencies

The U.S. dollar index, which tracks the greenback against a basket of its peers, was at 91.039 as it largely held on to gains from late February when it rose from levels below 90.

The Japanese yen traded at 106.83 per dollar, still weaker than levels below 105.7 against the greenback seen last week. The Australian dollar changed hands at $0.7772 following levels below $0.774 seen yesterday.

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