Bank of England policymakers warn UK economy facing bigger risks

LONDON: Bank of England (BoE) deputy governor Dave Ramsden and another interest-rate setter, Gertjan Vlieghe, warned today of risks that Britain's economy could suffer more damage than spelt out by the central bank last month.

Ramsden told lawmakers that the BoE had estimated the level of Britain's economic output would permanently be about 1.5 percentage points lower than it would have been without the pandemic.

"For me all the risks are really that that number will be greater than 1.5%," Ramsden said.

Vlieghe said there was "a material risk" that it could take several years for Britain's economy to return to full capacity after its coronavirus shock.

The BoE said in August it expected Britain's economy to recover its pre-Covid-19 size by the end of next year.

Britain's economy shrank by more than 20% in the April-June period, worse than any other big industrialised nation. That was partly because the country locked down later than many of its European peers.

In an annual report to parliament's Treasury Committee, Vlieghe said some sectors might not be able to return to their pre-pandemic size, leading to a reorientation of the economy.

"Based on these considerations, there is a material risk in my view that it could take several years for the economy to return to full capacity and inflation to return sustainably to target, even with monetary policy at its current settings," he said in the report.

Governor Andrew Bailey told the lawmakers in today's online session that inflation might not be as weak as estimated by the BoE last month, citing evidence that many businesses had not passed a value-added tax cut on to customers as much as had been expected.

"So that will tend to cause short-run inflation to be higher than we thought it would be, and it probably won't now go negative."

Asked for his views on the recovery in the economy after its lockdown, Bailey said the bounce back in consumption had been very fast while investment had been weak.

He also said a geographic breakdown of spending data showed that London had seen the weakest revival of credit card spending since the lockdown.

The capital has been particularly hard hit by the reluctance of many workers and their employers to get back to their usual places of work. Prime Minister Boris Johnson this week repeated his calls for people to return to their workplaces. – Reuters

source https://www.thesundaily.my/business/bank-of-england-policymakers-warn-uk-economy-facing-bigger-risks-XJ3812044

Saudi Arabia to allow foreigners to invest directly in debt instruments

RIYADH: Saudi Arabia's Capital Market Authority (CMA) said today it will allow foreigners to invest directly in debt instruments, furthering open the Saudi market to outside investors.

The market regulator said resident and non-resident foreigners would be able to invest in listed and non-listed debt instruments.

Saudi Arabia's reforms to develop and open up its capital markets are part of Vision 2030, an economic reform plan aimed at boosting growth in the private sector and at diversifying the country's economy beyond oil.

The Saudi main stock exchange, Tadawul, opened to foreign investors in 2015. The kingdom has since introduced a raft of reforms to attract overseas share buyers and issuers as part of efforts to lure foreign capital and diversify the oil-dependent economy.

This decision will help "enhance the investment environment attractive for foreign investors, thus contributing to raising the efficiency of the market and increasing its competitiveness regionally and internationally", the CMA said in its statement.

Non-resident foreigners will not be able to invest as direct investors in listed debt instruments and at the same time invest as a qualified foreign investor or an ultimate beneficiary in swap agreements, a vehicle that allows foreigners to buy into listed stocks through intermediaries.

In addition, foreigners who invest directly in debt instruments may not covert them into shares listed in the main market unless they are among the categories allowed to invest directly in listed shares in the main market or become an an ultimate beneficiary in a swap agreements, according to the statement. – Reuters

source https://www.thesundaily.my/business/saudi-arabia-to-allow-foreigners-to-invest-directly-in-debt-instruments-CJ3812026

US private payrolls miss expectations, point to slowing labour market recovery

WASHINGTON: US private employers hired fewer workers than expected for a second straight month in August, suggesting that the labour market recovery was slowing as the Covid-19 pandemic drags and government money to support workers and employers dries up.

Large businesses accounted for the bulk of the job gains shown in the ADP National Employment Report today, with small enterprises posting a modest increase. A US$600 (RM2,490) weekly unemployment supplement expired on July 31, while a programme that gave businesses loans that can be partially forgiven if used for employee pay has also lapsed.

"The recovery in jobs lost in this pandemic recession was always a weak one," said Chris Rupkey, chief economist at MUFG in New York. "But for a second month in a row it is looking like the jobs are not going to come back unless there is more stimulus from Washington to bolster economic demand and keep business activity and consumer spending growing."

Private payrolls increased by 428,000 jobs last month. Data for July was revised up to show hiring gaining 212,000 jobs instead of the initially reported 167,000. The revision still left the July tally out of alignment with the 1.462 million rise in private employment reported by the government last month.

Economists polled by Reuters had forecast private payrolls would increase by 950,000 in August.

The ADP report, jointly developed with Moody's Analytics, has fallen short of the government payrolls count since May because of methodology differences. The ADP report is based on active employees on company payrolls.

The Labor Department's Bureau of Labor Statistics (BLS) counts a worker as employed if they received a paycheck during the week that includes the 12th of the month.

When businesses were shuttered in mid-March, millions of workers were either laid off or furloughed. Some economists believe that the return of furloughed workers when most businesses reopened in May boosted the employment numbers reported by the government.

Moody's Analytics chief economist Mark Zandi told reporters he expected the gap between the ADP and BLS private payrolls narrowed in August. The government is scheduled to publish August's employment report on Friday.

According to a Reuters survey of economists, private payrolls probably increased by 1.265 million jobs in August after rising 1.462 million in July. Such a gain would result in non-farm payrolls advancing by 1.4 million jobs last month after increasing 1.763 million. That would leave nonfarm payrolls about 11.5 million below their pre-pandemic level.

The moderation in job growth suggested by the ADP report is in line with other labour market indicators. Weekly new applications for unemployment benefits are hovering around 1 million.

Data from Kronos, a workforce management software company, showed an increase in shifts in August, but the rise was heavily influenced by the late summer return to school.

Adjusting for back-to-school seasonality, weekly shifts fell on average. Data from Homebase, a payroll scheduling and tracking company, showed little change in employment in August from July.

"The jobs market continues to climb out the dark hole of the pandemic, but the climb out is slowing and risk is high that it will fall back in," said Zandi.

Large businesses accounted for 298,000 jobs last month, while small business payrolls increased 52,000.

Most of the increase in employment last month was in industries directly impacted by the pandemic, including restaurants, leisure and hospitality. There were also gains in temporary help, reflecting the uncertain economic environment. – Reuters

source https://www.thesundaily.my/business/us-private-payrolls-miss-expectations-point-to-slowing-labour-market-recovery-HJ3812009

Brazil’s economy to shrink 5% this year, rebound 4% or more in 2021: Central bank head

BRASILIA: Brazil's economy is on course to shrink by about 5% this year and grow by 4% or more next year, central bank chief Roberto Campos Neto said today, stressing the importance of the government resuming its agenda of strict fiscal discipline.

Speaking in an online interview with Bloomberg, Campos Neto said the huge emergency spending triggered by the Covid-19 pandemic was a "detour" and that a return to a credible fiscal path was essential to securing a sustainable recovery and keeping inflation and interest rates low.

Campos Neto acknowledged the importance of direct transfers to millions of Brazil's poorest people in preventing an even steeper economic slump, but said those and other emergency measures expire on Dec 31 and should not be extended.

"We need to take care of the poor ... but we need to take care of the fiscal limitations," he said.

Brazil's economy shrank by a record 9.7% in the second quarter, with household spending tumbling 12.5%. That was despite millions of families receiving monthly stipends of 600 reais about US$112 (RM485), which the government has extended through the end of the year, but at 300 reais a month.

Economists warn that the sudden removal of that support could have severe consequences for the recovery.

Campos Neto repeated his view that any room for further cuts to the benchmark Selic interest rate, currently at a record-low 2%, was "small."

Any bond buying from the central bank should be done to address issues of market liquidity and dysfunction, he said, not for monetary policy purposes. Using the bank's balance sheet for fiscal policy should be avoided because that tends to "end badly."

On foreign exchange, Campos Neto said market volatility was higher than it should be, likely due to record-low interest rates and fiscal uncertainty. The central bank lacks the tools to tackle it right now, but intervention is always an option if needed, he said. – Reuters

source https://www.thesundaily.my/business/brazil-s-economy-to-shrink-5-this-year-rebound-4-or-more-in-2021-central-bank-head-KG3811941

Advancecon secures two East Coast Rail Link contracts worth a total of RM80.8m

PETALING JAYA: Advancecon Holdings Bhd has secured two East Coast Rail Link (ECRL) contracts totalling RM80.8 million, from China Communications Construction (ECRL) Sdn Bhd.

The first contract is worth RM53.7 million starting from Sept 7, 2020 to Jan 6, 2023. The second contract is valued at RM27.1 million, commencing Sept 7, 2020 to Sept 6, 2022.

Advancecon group CEO Datuk Phum Ang Kia said these contract wins are a timely boost for the group’s existing earthworks and civil engineering works orderbook, and signifies the confidence its client has in the group to be part of the country’s biggest infrastructure development.

“These contracts prepare the group to be well-positioned and more competitive in future ECRL tenders due to the presence of mobilised resources. The government’s ongoing plan to implement the ECRL in the next few years is certainly positive for the group’s future prospects within this infrastructure megaproject,” Phum said in a statement.

With the addition of these two contracts, Advancecon’s orderbook expanded to RM771.1 million, with earnings visibility for at a minimum of 28 months.

source https://www.thesundaily.my/business/advancecon-secures-two-east-coast-rail-link-contracts-worth-a-total-of-rm808m-JM3806694

Iconic Worldwide to diversify into PPE manufacturing with RM155.5m investment

PETALING JAYA: Iconic Worldwide Bhd is looking to diversify its existing core businesses to include manufacturing and trading of personal protective equipment, as well as disposable face masks and gloves (PPE business), with a total investment of RM155.51 million.

A filing with Bursa Malaysia shows that the group plans to install and commission glove and disposable face mask production lines which are expected to yield a minimum production capacity of 3.1 billion pieces of gloves a year and 222.7 million pieces of face masks a year.

The RM155.51 million investment will be used for land acquisition, construction of a manufacturing facility, installation and commission of production lines, other equipment and working capital. It will be financed via a combination of internally generated funds, bank borrowings, and/or fundraising exercise.

Iconic has identified and plans to acquire a parcel of land measuring 6 acres in Batu Kawan, Penang, for the construction of the new manufacturing facility.

A total of 22 production lines comprising 12 glove-dipping lines and 10 mask production lines will be installed and commissioned over 12 months, at a total cost of RM78.2 million.

The exercise is expected to be completed by second half of 2020. Furthermore, the new factory is expected to be completed within 12 months from the commencement of construction and operate by second half of 2021.

Iconic Worldwide managing director Datuk Tan Kean Tet (pix) expects demand for PPE to be sustainable even after the Covid-19 pandemic due to prevailing public awareness of the need for self-protection and hygienic practices.

“Therefore, it is timely to capture the rising demand for the product offerings under the PPE business. We will also be targeting countries with high Covid-19 infection rates such as European & US as principal export markets for the PPE business.”

He added that the proposed diversification will provide an alternative income stream to the group, and will also provide an opportunity for the group to grow its revenue and enhance its business portfolio.

source https://www.thesundaily.my/business/iconic-worldwide-to-diversify-into-ppe-manufacturing-with-rm1555m-investment-AK3804211

Oil prices to trade sideways in September, says Fitch Solutions

PETALING JAYA: Fitch Solutions has projected oil prices to remain at an average of US$44 (RM182.58) per barrel for 2020, before rising to an average of US$51 in 2021.

It noted that the Brent continues to trade sideways as it faces key points of resistance around US$45-45.20 per barrel.

“A sustained break to the upside will likely require an improvement in sentiment, which to-date has remained weak, despite a marked tightening in the physical crude market since the April price lows,” said the research arm of Fitch Ratings.

It opined that the market will continue to rebalance over the second half of the year and into next year, driven by continued drawdown of global inventories and further gains in prices.

Fitch Solutions noted that the rebalancing will be slow, reflecting a gradual recover on demand and return of shut-in wells and the unwinding of the Opec+ deal on the supply side.

“Moreover, the contango term structure in Brent has gradually deepened this month, typically an indication of market loosening and a bearish sign of sentiment and prices,” it said.

Fitch Solutions highlighted that the market management by Opec+ has been unprecedented, as the market saw 8.9 million barrels per day (bpd) – equivalent to around 9.0% of global supply – removed by Opec and Russia in May with a further 1.43 million bpd cleared in June.

Under the agreed schedule, cuts will decline from 9.7 million bpd to 7.7 million bpd on Aug 1.

On the whole it noted that these measures will be insufficient to prevent significant increases in the group’s output and that the core Gulf Cooperation Council (GCC) producers – Saudi Arabia, Kuwait and the United Arab Emirates – will be sensitive to price action and may limit the growth in their production, should market conditions dictate it.

Outside Opec+ particularly in the US, Fitch Solutions pointed out the supply shelved in Q2 due to weakened demand and Covid-19 related disruption are being brought back online, leading to a rise in production which may weigh on prices in the short run.

Although, its effect is expected to be temporary as the data signalled a year-on-year (y-o-y) decline in global crude, condensate and NGL supply in both 2020 and 2021.

In response to the price collapse, producers have aggressively pared back on spending and it forecasted a drop in global capex of 23% year on year in 2020.

Fitch Solutions elaborated that the initial rebound in demand was somewhat stronger than anticipated, as a result it has improved its forecast for global fuel demand from a 7.2% y-o-y decline to a 5.9% y-o-y drop in 2020.

source https://www.thesundaily.my/business/oil-prices-to-trade-sideways-in-september-says-fitch-solutions-KK3804194