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UK leader Boris Johnson loses second bid to hold an early election

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Britain’s Prime Minister Boris Johnson speaks during Prime Minister’s Questions session in the House of Commons in London, Britain September 4, 2019.

Jessica Taylor | ©UK Parliament | Reuters

U.K. Prime Minister Boris Johnson has lost a second bid to hold a snap election, making it more likely that he will have to ask the EU for an extension to the current Brexit deadline.

The government needed 434 votes — or two-thirds of the votes from all lawmakers in the 650-seat lower house of parliament. But in the early morning Tuesday vote, only 293 supported the government’s proposal.

Johnson said the government will press on with negotiating a Brexit deal and will not delay Britain’s exit from the European bloc. He also said he will be going to the European Union Summit on Oct. 17 in a bid to get an agreement.

During the debate Monday, Labour Party leader Jeremy Corbyn said his party will not vote for an election until the possibility of a no-deal Brexit at the end of October has been taken off the table.

“Until … no-deal has been taken off the table… we will not vote to support the dissolution of this house and a general election,” Corbyn told parliament. Britain is due to leave the European Union on Oct. 31.

“We’re eager for an election. But as keen as we are, we are not prepared to risk inflicting the disaster of no-deal on our communities,” Corbyn said.

It was widely expected that Johnson would lose the vote on Monday evening, having lost a bid to hold a snap vote last Wednesday amid upheaval in British politics. A week ago, a majority of lawmakers (including members of the ruling Conservative Party) voted to take control of the parliamentary agenda from Boris Johnson’s government.

A majority then approved legislation to block Johnson from being able to oversee a no-deal Brexit on October 31.

That legislation — which stipulates that Johnson must ask the EU for an extension to the Brexit deadline if no deal is approved or rejected by parliament by October 19 — received royal approval and became law on Monday, making it ostensibly illegal for Johnson to defy it.

Opposition parties had already agreed that they would not approve Johnson’s motion to hold an early election before the legislation to prevent a no-deal Brexit was enshrined in law, or a delay was secured from the EU. An early election could have strengthened Johnson’s hand to repeal the legislation and proceed with a no-deal Brexit.

In typical flamboyant fashion, Johnson has said he would rather “die in a ditch” than ask for more time from the EU. As such, it is still unclear whether the government could try to circumvent or challenge the legislation.

When asked whether the prime minister could defy parliament by pursuing a no-deal Brexit, the government’s Brexit Secretary Stephen Barclay was coy, telling CNBC Sunday that “the ministerial code requires obeying the law … but the key issue is how do we deliver on the democratic results of the British people.”

Parliament will be suspended by the close of business Monday and will re-open on October 14 for the start of a new parliamentary year.

Election before 2020

Even if the government does end up asking the EU for another delay to its departure to March 31, 2020, (the original departure date was meant to be March 29, 2019) it’s not clear whether the EU would approve a delay; France, in particular, is not keen and could potentially veto the move.

Ahead of the election vote Monday, Brexit watchers had already noted that it made little sense for opposition parties to give Johnson the early snap election ahead of the Brexit departure date, although a snap vote is still expected before the end of the year.

“It would be better for the rebels to force Johnson cap in hand to go the EU Council (meeting) on 17 October to ask for an extension first, or to let him refuse before toppling him in a vote of no-confidence — that would give rebel MPs, if they can organize, control over the election timetable,” Kallum Pickering, senior economist at Berenberg Bank, said in a note Monday.

“Therefore, while we expect a snap election before the end of the year, we do not expect it to be triggered before a further delay is secured — implying 17 October onwards. Hence, we doubt there will be an election ahead of the currently planned Brexit day on 31 October,” he added.

Boris Johnson’s authority shaken

Having only been elected to lead the Conservative Party in July, Johnson’s authority has already been sorely shaken by key resignations from his cabinet because of his renegade approach to Brexit. His own brother resigned from the cabinet last week, saying he was torn between “family loyalty and the national interest.”

Another key minister Amber Rudd resigned on Saturday night, saying that she didn’t believe the government was doing enough to get a deal with the EU.

A key stumbling block to the Brexit deal being approved by a majority of the U.K. Parliament is the contentious “backstop” policy regarding Northern Ireland and maintaining a frictionless border with the Republic of Ireland.

Having met his Irish counterpart in Dublin on Monday, Johnson insisted it was possible to find a practical solution to get around the “backstop” problem and that he wanted a deal with the EU.

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Weekly jobless claims reach 2.1 million, but total unemployed shrinks

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First-time claims for unemployment benefits totaled 2.1 million last week, the lowest total since the coronavirus crisis began though indicative that a historically high number of Americans remain separated from their jobs.

Economists surveyed by Dow Jones had been looking for 2.05 million. The total represented a decrease of 323,000 from the previous week’s upwardly revised 2.438 million.

Continuing claims, or those who have been collecting for at least two weeks, numbered 21.05 million, a clearer picture of how many workers are still sidelined. That number dropped sharply, falling 3.86 million from the previous week.

That decline in continuing claims “suggests that the reopening of states is pushing businesses to rehire some of the people let go when the virus hit,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. However, Shepherdson noted that some of the data, particularly from California, remains noisy and may not be an accurate representation of some states’ situations.

The insured unemployment rate, which is a basic calculation of those collecting benefits vs. the total labor force, came down sharply to 14.5% from 17.1% the previous week.

“Layoffs continue at a massive scale, according to the latest unemployment insurance report, but it may be that the job market is nearing a turning point,” said Gus Faucher, chief economist at PNC.

The four-week moving average, which helps smooth out weekly volatility, rose to 22.72 million, an increase of 760,250 from the previous week. 

Since the pandemic was declared in mid-March, 40.8 million have filed claims as social distancing measures aimed at containing the coronavirus outbreak resulted in much of the $21.5 trillion U.S. economy being in lockdown for 2½ months.

A separate report Thursday showed that first-quarter GDP contracted by 5%, while the Atlanta Fed’s GDPNow tracker is indicating a 41.9% plunge in Q2 that will be the worst in U.S. history. That would put the U.S. firmly in recession territory, though most economists are expecting a rebound in the second half of the year after restrictions are lifted.

A total 1.19 million filed claims through the Pandemic Unemployment Assistance program last week.

The high jobless numbers persist even as all states have reopened their economies to various extents. Las Vegas casinos will be resuming activities late next week, Disney resorts also have targeted July reopening dates and Los Angeles is allowing retail stores to resume business. Restrictions are likely to be loosened soon in New York as well.

Still, businesses are wrestling with multiple dynamics stemming from the biggest surge in in layoffs since the Great Depression. The Federal Reserve reported Wednesday that business owners are seeing workers reluctant to return to their jobs because of safety concerns, child-care issues and “generous” unemployment benefits from the government.

At the state level, Pennsylvania saw the biggest rise in claims last week with 6,892, according to numbers not adjusted seasonally. Many large states, though, saw declines from a week earlier Washington fell by 86,839, while California declined by 32,088 and New York decreased by 31,769.

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If Fed opts for negative rates, it will be a ‘Hail Mary’

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A woman walks past the U.S. Federal Reserve building in Washington D.C., the United States, May 21, 2020. U.S. Federal Reserve Chair Jerome Powell on Thursday said the COVID-19-induced economic downturn has inflicted acute pain across the country, noting that the burden is not evenly spread.

Ting Shen | Xinhua News Agency | Getty Images

Should the U.S. Federal Reserve opt to take its benchmark funds rate into negative territory, it will need to “go deeply negative” with a cut of between 50-100 basis points below zero, according to Standard Chartered Bank.

The Fed has unleashed an unprecedented barrage of monetary stimulus in a bid to shore up the U.S. economy against the economic impact of the coronavirus pandemic. However, Chairman Jerome Powell has denied that taking its benchmark overnight lending rate below zero is under consideration, despite pressure from U.S. President Donald Trump.

Speculation of negative rates has nonetheless persisted, and although not the bank’s base-case scenario, Standard Chartered analysts said in a note Wednesday that it could occur in the event of a disappointing economic rebound and exhaustion of other policy options. They suggested that if negative rates were to emerge as a last resort, the central bank would need to go deep.

“No one likes trying a ‘Hail Mary’ from midfield as the clock ticks down when you are losing, but you kick the ball a long way in that situation – there is no point to a short pass,” said Steven Englander, head of global G10 FX research and North American Macro Strategy at Standard Chartered.

Negative interest rates, as seen in the euro zone and Japan, effectively charge banks to hold money with the central bank in a bid to encourage them to lend and therefore stimulate the economy. However, both the euro zone and Japan have seen limited benefits since their implementation, which was before the coronavirus pandemic erupted.

Englander argued that while central banks often present breaching zero as akin to “crossing the Rubicon,” there is not necessarily a “non-linear” policy impact that would make edging from a small positive to a small negative a significant monetary policy maneuver.

“If cutting policy rates from 150bps (basis points) to 10bps was not enough to shock the economy into recovery, we (and we suspect the Fed) do not think that going from +10bps to, say -20bps would materially affect the outcome,” Englander said.

“We doubt that the Fed expects a small venture into negative territory would provide enough stimulus to offset the negative impact on banks lending and disruption of short-term money markets.”

Plunging dollar and negative yields

Englander suggested that dropping 50-100 basis points below zero would trigger a significant fall in yields on the benchmark 10-year Treasury note, along with easing debt-servicing pressures.

Standard Chartered analysts believe this would likely send Treasury yields to all-time lows across the curve, potentially taking the 10-year negative, especially since the policy action would likely be taken against a backdrop of a bleak economic outlook and rising deflation risks.

“Still, we would expect the move to be driven primarily by the real yield channel in response to the rate cuts and ongoing Fed U.S. Treasury buying,” he added.

Should the move to negative rates transpire, Englander anticipates a sharp fall in the U.S. dollar, with the timing of the drop dependent on the economic and asset market context.

“Negative rates could disrupt short-term money markets at first, so the initial response might be buying G10 safe havens, or even result in USD strength,” he said.

“Once the surprise element passed through the market, currencies with positive yield and muted fiscal policy should prosper.”

Meanwhile, gold would likely test all-time highs in this scenario, Englander projected, as negative interest rates would “lower the opportunity cost of holding gold.”

“Investors still appear to be under-allocated to gold, and negative rates could draw interest from retail to the official sector,” he added.

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Cryptocurrency fans lay into bank

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Goldman Sachs Group Inc. signage is displayed on a monitor on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Friday, Oct. 7, 2016.

Michael Nagle | Bloomberg | Getty Images

Goldman Sachs isn’t convinced there’s a case for investing in cryptocurrencies like bitcoin. Crypto evangelists — perhaps unsurprisingly — aren’t impressed with its assessment.

The U.S. bank’s consumer and investment management division released a slide deck ahead of an investor call Wednesday, examining the impact of the coronavirus outbreak on the U.S. economy. A sizable chunk of the presentation focused on bitcoin and other virtual currencies.

“Cryptocurrencies including bitcoin are not an asset class,” Goldman Chief Economist Jan Hatzius and Harvard Professor Jason Furman wrote in the opening of one slide. The deck detailed several reasons why cryptocurrencies couldn’t be considered an asset class in their own right, claiming they don’t generate cash flow likes bonds or earnings through exposure to global economic growth.

“We believe that a security whose appreciation is primarily dependent on whether someone else is willing to pay a higher price for it is not a suitable investment for our clients,” Hatzius and Furman wrote.

“We also believe that while hedge funds may find trading cryptocurrencies appealing because of their high volatility, that allure does not constitute a viable investment rationale.”

Many industry analysts have been pointing to increased interest from institutional investors like hedge funds as a potential catalyst for price rises. Such speculation grew after hedge fund veteran Paul Tudor Jones said earlier this month that he has almost 2% of his assets in bitcoin.

Crypto enthusiasts had eagerly anticipated the Goldman call, with some assuming the 151-year-old bank might lay out a case for investing in bitcoin. Needless to say, they didn’t get what they wanted on Wednesday.

The Winklevoss twins, co-founders of the cryptocurrency exchange Gemini, were among the most vocal in the backlash to Goldman’s claims.

“Hey Goldman Sachs, 2014 just called and asked for their talking points back,” Cameron Winklevoss said in a tweet.

His brother, Tyler, claimed, “The more I think about it, the Goldman report is probably a head fake,” referring to a sports tactic used to throw an opponent off by pretending you’re moving in one direction only to then move the opposite way.

Goldman’s Hatzius and Harvard’s Furman drew a comparison between bitcoin’s monster rally in late 2017 — when it surged close to $20,000 — and the Dutch “tulip mania” of the 17th century, one of the most well-known speculative bubbles in history. Similar comparisons have been made previously by bank executives — most notably J.P. Morgan CEO Jamie Dimon, who called bitcoin a “fraud” that will eventually “blow up.”

Goldman played down the idea that bitcoin is a “scarce resource,” noting that some of the most valuable coins — bitcoin cash and bitcoin SV — are “forks.” This means the new coins that have been created out of changes in the protocol of the bitcoin network.

Bitcoin bulls often claim the digital asset’s limited supply is part of what underpins its value and makes it a potential “hedge” against currencies which are vulnerable to devaluation in times of economic crisis.

The bank also called cryptocurrencies a “conduit for illicit activity,” highlighting their use in fraudulent schemes and money laundering.

“It’s important to note that Goldman Sachs’ competitors Fidelity and JP Morgan have made significant investments in cryptocurrency,” said Dave Hogson, chief investment officer and managing director of NEM Ventures, a cryptocurrency-focused venture capital firm. Fidelity last year set up a separate unit devoted to cryptocurrency clearing and custody, while J.P. Morgan developed its own internal digital currency, “JPM Coin,” for payments.

“While volatility is indeed high, the year-on-year, and now decade-long performance is a consistent uptrend based on holding the asset, not trading the volatility. By considering it unviable for its investors, Goldman Sachs has risked causing its investors to miss out on one of the best performing asset classes in the past 100 years, never mind the last 10.”

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