Latest News Clips 2018.06.25

                      

1.      China's economy shows signs of slowing. A trade war won't help

CNN   June 20, 2018:

The start of a trade war between the United States and China comes at an inconvenient time for the Chinese economy.

In recent weeks, concerns have been mounting that growth in the world's second-biggest economy is cooling faster than expected. Weaker Chinese growth will have repercussions for big trading partners, such as the United States and Europe, and for global companies who do business there.

Now, an intensifying clash with the United States is adding to the difficulties. Both sides announced tariffs on $50 billion of each other's products last week, and President Donald Trump upped the ante further on Monday with a threat to impose duties on at least another $200 billion of Chinese goods.

"The trade dispute is escalating at a time when doubts about the domestic economic picture are rising," Mark Williams, chief Asia economist at research firm Capital Economics, wrote in a research note last week.

The Chinese economy performed strongly last year, growing 6.9%, according to government figures. That momentum continued into the start of this year, but many economists were skeptical it would hold. Signs of a slowdown are starting to appear.

Official economic data for last month showed that growth in important areas like exports, investments by companies and consumer spending all declined compared with the same month a year ago.

The numbers "suggest a broad-based slowdown is now emerging, and we expect this to continue," said Louis Kuijs, head of Asia economics at research firm Oxford Economics.

He predicts China's economy will grow 6.4% this year, or slightly below the Chinese government's growth target for of about 6.5%. Some analysts have repeatedly questioned the accuracy of official GDP data.

This is what a trade war looks like

The deepening trade fight with the United States is likely to contribute to the loss of momentum.

Haibin Zhu, chief China economist at JPMorgan, estimates that US tariffs on Chinese exports could slice between 0.1 and 0.5 percentage points off Chinese economic growth, depending on the scale and intensity of the tariffs.

The fallout may spread beyond the direct impact of tariffs, too, hurting business confidence and delaying investment decisions in the country, Zhu added.

Weaker growth ahead

That's even more of a concern after the recent soft economic data.

"Economic growth appears likely to weaken further over the second half of the year," said Capital Economics' Williams.

Some economists say a key reason for the apparent slowdown is the Chinese government's push to rein in the huge levels of debt in the country, which have risen sharply since the global financial crisis a decade ago.

By the middle of last year, debt was more than two and a half times the value of the entire Chinese economy, according to the Bank of International Settlements. Ratings agencies Moody'sand S&P last year downgraded China's credit rating.

Xi and other top officials have talked about reducing risks in China's financial system, which is often referred to as "deleveraging." They have also tried to crack down on China's huge shadow banking sector in which murky forms of lending are kept off banks' official balance sheets.

2.      Turkey elections 2018: everything you need to know

Erdoğan is running for president, of course, but who else is in the running for control?

The Guardian  18 Jun 2018

  

What is happening in Turkey?

The country will hold presidential and parliamentary elections on 24 June. If no candidate wins an outright majority in the first round of the presidential elections, a second round will be held on 8 July between the top two candidates in the race.

Why are the elections being held now?

The elections were supposed to be in November 2019. President Recep Tayyip Erdoğan, however, called for early elections back in April. He said that Turkey needed to “overcome uncertainty” at a troubled time in the region, amid its ongoing military operations in Syria and Iraq.

Critics, however, say the race was brought forward because Turkey’s currency and economy are suffering and the president wanted to preempt the downward trend. He may also be hoping to capitalise on nationalist sentiment after military victory in Syria, where rebels backed by Turkey defeated Kurdish militias near the border in a region called Afrin.

Why are these elections important?

This is arguably the most important election in Turkey’s modern history. The new president will assume an office imbued with sweeping executive powers that voters narrowly approved in a constitutional referendum last year. These include the power to issue decrees with the force of law, appoint the cabinet and vice-presidents as well as senior judges. If he wins, Erdoğan will continue to shape Turkey and its society for years to come.

Who is running for president?

Erdoğan, of course. He remains the most popular political leader in Turkey. But he faces several important opponents who have done unexpectedly well so far in the campaign, and, as a result, a second-round contest is now the most likely outcome.

There is Muharrem İnce, a charismatic physics teacher who is the candidate of the main opposition group, the Republican People’s party (CHP), and Meral Akşener, nicknamed the ‘she-wolf’. She is the leader of the new nationalist Iyi (Good) party and is popular with both youth and working-class Turks.

Temel Karamollaoğlu, the leader of the Islamist Felicity party, is also running, and has emerged as a key critic of Erdoğan even though their parties share ideological roots. Selahattin Demirtaş, a charismatic politician once dubbed the ‘Kurdish Obama’ and who leads the leftist and Kurdish issue-oriented People’s Democratic party (HDP), is running for the presidency from his prison cell in the city of Edirne. He awaits trial on terrorism charges.

What’s happening in parliament?

There are two main coalitions running for parliament.

The first includes the ruling Justice and Development party (AKP) of Erdoğan, which are in a coalition with the nationalists.

On the opposite side is an alliance that includes the secularists of the CHP, the breakaway nationalists of the Iyi party, and the Islamists of the Felicity party. They make strange bedfellows in a political system where secularists and Islamists have traditionally been bitter enemies, but such is the importance of these elections that former rivals have banded together to oust the president and his entourage. The HDP is running by itself.

The Turkish constitution requires that parties obtain at least 10% of the national vote to enter parliament, a law that favours larger parties. A new bill recently allowed the formation of election alliances like those described above, which will allow smaller parties like Felicity to win some seats in the legislature if their alliance as a whole crosses the 10% threshold.

If the opposition alliance performs as expected, and the HDP gets over 10% of the popular vote, the ruling AKP could lose its majority in parliament.

So who will win?

Erdoğan was hoping to catch his opponents by surprise when he called for a vote, but attendance at ruling party rallies has been lacklustre, and the Turkish leader does not appear to be at the top of his game. The economy has also caused headaches, with the Turkish lira falling in value against the dollar, concerns mounting over the long-term health of the economy, and fears over the Central Bank’s independence.

Still, Erdoğan is the most popular Turkish politician, and is likely to win the presidential race. Polls are notoriously unreliable in Turkey, but for now it looks like he will easily win the first round, but without an outright majority. A second-round race against Ince or Aksener still favours the president, but is increasingly looking too close to call. It will depend on whether the opposition can draw away conservative and nationalist voters, as well as Kurdish voters angry about Erdogan’s alliance with the nationalists.

Also, there is a very real possibility that Erdoğan will win the presidency but lose parliament to the opposition, which has promised to roll back the constitutional amendments passed last year.

But, under those same amendments, the president can dissolve parliament, and the legislature can call new presidential elections in response. According to some ruling party officials, that’s exactly what Erdoğan might do, which would give his party a chance at a do-over, but plunge Turkey into uncertainty.

3.      Why the AT&T-Time Warner Case Was So Closely Watched

The New York Times   2018.06.12

If Media Giants Grow, So May Your Bills

The government doesn’t want you to pay too much to watch your shows. That’s why the Justice Department says it is challenging the proposed merger between AT&T and Time Warner.

AT&T took a step closer to becoming a telecom-media giant after a judge ruled on Tuesday that its $85.4 billion takeover of Time Warner can proceed. Read our detailed coverage of the ruling here.

The decision was no less momentous for President Trump’s Justice Department which, in suing to block the deal, was advocating a new approach to antitrust regulation.

Here’s a primer on what happened:

What’s the big deal?

AT&T, which most Americans know as a mobile-phone service provider, is trying to buy Time Warner, owner of big media brands including HBO, Warner Bros. and CNN.

The takeover was announced in October 2016, and is the latest effort by a big telecom or cable company to acquire media assets. The cable company Comcast owns NBCUniversal, and Verizon owns websites including Yahoo and HuffPost.

The Justice Department sued to block the deal last year, arguing that it would limit competition and raise costs. The companies countered that the deal would allow Time Warner and AT&T to compete more effectively against Silicon Valley companies like Google and Netflix.

What was the judge’s decision?

The takeover can proceed without any conditions, Richard J. Leon, a United States District Court judge, ruled. AT&T and Time Warner can now push on with the deal, which they aim to close later this month.

The decision is expected to be taken as a green light for more takeovers. For example, Comcast is expected to make a bid for most of 21st Century Fox’s television assets — setting up a bidding war against the Walt Disney Company.

It’s possible that the Justice Department will appeal the ruling, though, so things may not end here.

What was the reaction?

AT&T said in a statement that it hoped to close the merger “on or before June 20 so we can begin to give consumers video entertainment that is more affordable, mobile, and innovative.”

The Justice Department said it would consider its options.

Shares of other companies involved in mergers rose after the ruling. T-Mobile which is seeking to merge with rival mobile-service provider Sprint rose about 1.5 percent in after-hours trading. Sprint gained 1 percent.

CVS and Aetna also rose, while Express Scripts, which is being acquired by insurer Cigna, added about 5 percent. Cigna also rose.

 

Latest News Clips 2018.06.11

                             

1.      Fixing the Euro The Time to Act Is Now

Italy can only manage its current crisis with German help. And Germany needs Italy to keep Europe stable. While there is no simple solution, a new form of assistance could help.

Der Spiegel    June 06, 2018 

The cornerstone for the political integration of Europe was laid just over 60 year ago in Rome. Today, though, Rome is the source of political risk that has the potential to inflict lasting damage on the European project, even more so than Brexit. The danger emanating from the current, out-of-control situation doesn't just come from the possible return of the euro crisis and its far-reaching consequences for growth and prosperity. It also comes from the new,toxic atmosphere of distrust among European peoples and nations. Many Italians believe the true source of the crisis facing their country is to be found in Germany and in "Teutonic austerity." Many Germans, meanwhile, view Italy and the Italian debt trap as the most pressing threat to the euro and to European economic stability. Such aren't particularly helpful when it comes to meeting the challenges that are now coming into view.

At 2.3 trillion euros, Italy has the largest debt load of any country in the entire European Union, and it is paired with the lowest rate of economic growth. Every third Italian under the age of 25 is unemployed. Banks in the country are struggling under the weight of a huge number of bad loans. In contrast to other eurozone countries that have experienced crisis, Italy never experienced an economic boom in the initial years of the currency union. Per-capita income has stagnated for 20 years. And yet Italy has still managed to adhere to strict EU deficit rules in recent years. From the Italian perspective, however, the benefits of doing so have been nonexistent. Against that background, the implosion of the country's political system can hardly come as a surprise.

No Simple Answer

Germany will not be able to isolate itself from the problems in Italy. If the crisis devolves further, a critical question will have to be asked: What is Germany prepared to do to keep Italy in the currency union? The explosiveness of this question is hard to overestimate. And unfortunately, it is already clear that there is no simple answer.

Italy needs more growth to be able to pay down its mountain of debt, and it also needs more social equality, especially between the rich north and the struggling south. The question as to how to achieve those goals, however, is a controversial one - both in Italy and in Europe at large. Would it be better for the country to leave the eurozone? Would it be helpful to abandon austerity, or is an even more ambitious savings program needed? Should the country restructure its debt? Should its debts be covered in a debt redemption fund? Even among economists, there is no consensus on these questions. Calling it helplessness would not be inaccurate.

One thing is certain: Every single one of these measures would likely initially lead to an additional crisis - either political or financial, either in Italy or in the rest of Europe. That is why any rushed decision on Italy is both naïve and dangerous.

Most options, viewed soberly, aren't really options at all. Italy's departure from the eurozone would plunge Europe into an even deeper crisis than the one we recently left behind. A debt haircut like the one applied to Greece would eliminate around a trillion euros in a single blow with uncontrollable consequences for the European banking and insurance system - and thus for the prosperity and social security of the people of Europe. A vast bailout package for the Italian economy, one which would also have to prop up Italian banks, is likewise unrealistic. Europe is simply unable to afford a bailout for the world's eighth largest economy.

And Mario Draghi? Could the European Central Bank stabilize the eurozone with a new whatever-it-takes approach? I believe doing so would be dangerous. It is not the central bank's job to solve political crises. And from a German perspective, it would be cynical to continue relying on the ECB given the intensity of the criticism that came from Germany when the ECB went to the limits of its mandate to save the euro.

Italy is too big to fail. But Italy is also too big to be saved. That is why comparisons with Greece aren't helpful. To help Italy, it is necessary to invent a new form of assistance. What is needed is a clear political strategy to ensure progress toward economic stability in Italy while ensuring that necessary reforms take place. Growth needs to lay the foundation for the modernization of the economy - through reforms which the government must be willing to then push through.

2.      Macron calls on G7 members to confront Trump over trade

French president warned G7 members to resist a potential US drift toward ‘crude hegemony’ following Trump’s tariffs on allies

The Guardian 8 Jun 2018 

 Emmanuel Macron attends at a joint press conference with Justin Trudeau in Ottawa, Canada, on Thursday. Photograph: Ian Langsdon/EPA

Emmanuel Macron has called on other members of the G7 to stand up to Donald Trump’s trade policies in the face of what he described as the threat of a new US “hegemony”.

The French president was speaking alongside the Canadian prime minister, Justin Trudeau, who is hosting the G7 summit in Quebec amid sharp disagreements between the US president and the six other leaders of industrialized liberal democracies over trade, climate change and the nuclear deal with Iran.

Macron called on other G7 leaders not to water down a joint communique at the end of the summit, at the expense of shared values, simply in an effort to win Trump’s signature, warning that a “G6 plus one” outcome was possible.

The challenge brought a tweeted response from Trump, claiming Macron and Trudeau’s governments were pursuing unfair trade practices at the expense of US producers. “Look forward to seeing them tomorrow,” he signed off sardonically. In a second tweet he said Canadian trade policy was “killing our Agriculture.”

Even under the North American Free Trade Agreement, Canada and the US have had long-running disputes about subsidies, tariffs and restrictive practices. In particular the US has complained about access for its dairy products, and Canada says the US imposes unfair tariffs on its lumber exports. Ottawa has called for the disputes to be resolved by arbitration, and points out that Canada is the biggest market for US agricultural exports, and second biggest market for dairy exports.

The pointed exchange between the leaders highlighted deep divisions that were already clearly evident before Friday’s summit. Trump is expected to arrive at mid-morning on Friday, and hold closed-door meetings at La Malbaie, a summer resort on the St Lawrence river. He is due to hold bilateral sessions with Trudeau and Macron, and met the Japanese prime minister, Shinzo Abe, in Washington on Thursday. The president has no plans to see Theresa May or Angela Merkel, with whom his relations are even frostier.

Trump is due to leave the summit several hours early on Saturday morning, to fly direct to his next engagement, a summit with the North Korean leader, Kim Jong-un in Singapore.

In their remarks to reporters, Trudeau and Macron emphasised the importance of maintaining dialogue and courtesy in relations with Trump, arguing the meeting was an essential forum for finding common ground and resolving differences.

“The G7 is an opportunity to meet to have frank and open discussions between countries that are longtime allies and friends,” Trudeau argued.

Both men, however, voiced anger over Trump’s imposition of steel and aluminum tariffs against close allies, supposedly on “national security” grounds. The EU and Canada have imposed reciprocal sanctions on US goods and have taken their complaint to the World Trade Organisation.

Trudeau described the tariffs as “unilateral and illegal” and the national security pretext as “risible”. He added that Trump’s “unacceptable actions are going to harm his own citizens”.

“It is American jobs that are going to be lost because of the actions of this administration,” the Canadian prime minister added.

Macron was even more emphatic, calling on the other G7 members to resist what he warned was a potential US drift towards “further isolationism and “crude hegemony”.

Macron has previously accused China of pursuing hegemony in Asia.

“The six other countries of the G7 represent a market which is bigger than the American market,” the French president said. “I believe in cooperation and multilateralism because I will resist hegemony with all my strength. Hegemony is might makes right. Hegemony is the end of the rule of law.”

Macron said he would do everything in his power to help Trudeau’s presidency of the G7 to succeed and produce a joint statement on Saturday that can be signed by all seven members.

However, he argued that other countries should be ready to have a “G6 plus one” outcome, sticking to a text that enshrines their common values, even if Trump does not sign it.

3.      Bayer to Buy Monsanto, Creating a Massive Seeds and Pesticides Company

The megamerger is likely to face intense regulatory scrutiny

German drugs and crop chemicals company Bayer has won over U.S. seeds firm Monsanto with an improved takeover offer of around $66 billion, ending months of wrangling after increasing its bid for a third time.

The $128 a share deal, up from Bayer's previous offer of $127.50 a share, is the biggest of the year so far and the largest cash bid on record.

The deal will create a company commanding more than a quarter of the combined world market for seeds and pesticides in the fast-consolidating farm supplies industry.

However, competition authorities are likely to scrutinize the tie-up closely, and some of Bayer's own shareholders have been highly critical of a takeover plan which they say risks overpaying and neglecting the company's pharmaceutical business.

The transaction includes a break-fee of $2 billion that Bayer will pay to Monsanto should it fail to get regulatory clearance. Bayer expects the deal to close by the end of 2017.

The details confirm what a source close to the matter told Reuters earlier.

Bernstein Research analysts said on Tuesday they saw only a 50 percent chance of the deal winning regulatory clearance, although they cited a survey among investors that put the likelihood at 70 percent on average

"We believe political pushback to this deal, ranging from farmer dissatisfaction with all their suppliers consolidating in the face of low farm net incomes to dissatisfaction with Monsanto leaving the United States, could provide significant delays and complications," they wrote in a research note.

Bayer said it was offering a 44 percent premium to Monsanto's share price on May 9, the day before it made its first written proposal.

It plans to raise $19 billion to help fund the deal by issuing convertible bonds and new shares to its existing shareholders, and said banks had also committed to providing $57 billion of bridge financing.

At 1140 GMT, Bayer shares were up 2.2 percent at 95.32 euros. Monsanto's were up 0.2 percent at $106.3 in premarket trade.

ONE-STOP SHOP

Bayer's move to combine its crop chemicals business, the world's second largest after Syngenta AG, with Monsanto's industry leading seeds business, is the latest in a series of major tie-ups in the agrochemicals sector.

The German company is aiming to create a one-stop shop for seeds, crop chemicals and computer-aided services to farmers.

That was also the idea behind Monsanto's swoop on Syngenta last year, which the Swiss company fended off, only to agree later to a takeover by China's state-owned ChemChina.

Elsewhere in the industry, U.S. chemicals giants Dow Chemical and DuPont plan to merge and later spin off their respective seeds and crop chemicals operations into a major agribusiness.

The Bayer-Monsanto deal will be the largest ever involving a German buyer, beating Daimler's tie-up with Chrysler in 1998, which valued the U.S. carmaker at more than $40 billion. It will also be the largest all-cash transaction on record, ahead of brewer InBev's $60.4 billion offer for Anheuser-Busch in 2008.

Bayer said it expected the deal to boost its core earnings per share in the first full year following completion, and by a double-digit percentage in the third year.

Bayer and Monsanto were in talks to sound out ways to combine their businesses as early as March, which culminated in Bayer coming out with an initial $122 per-share takeover proposal in May.

Antitrust experts have said regulators will likely demand the sale of some soybeans, cotton and canola seed assets as a condition for approving the deal.

Bayer said BofA Merrill Lynch, Credit Suisse, Goldman Sachs, HSBC and JP Morgan had committed to providing the bridge financing.

BofA Merrill Lynch and Credit Suisse are acting as lead financial advisers to Bayer, with Rothschild as an additional adviser. Bayer's legal advisers are Sullivan & Cromwell LLP and Allen & Overy LLP.

Morgan Stanley and Ducera Partners are acting as financial advisers to Monsanto, with Wachtell, Lipton, Rosen & Katz its legal adviser.