Financial Times Europe - 20.08.2019

Tuesday20 August 2019 ★ 11

© The Financial Times Limited 2019 Week 34

The global fall in interest rates has presented the Bank of Japan with an impossible choice — allow government bond yields to keep sliding or defend them and risk further strength in the yen. Analysts awaiting the next BoJ meeting do not expect radical action. AnalysisiPAGE 19

BoJ caught on horns of a yield or yen dilemma

MARTIN ARNOLD— FRANKFURT PHILIP STAFFORD— LONDON

European banks and other financial institutions need to speed up their preparations for the phasing-out of an interest rate benchmark used to price more than €24tn of derivatives, loans and bonds, the European Central Bank has warned.

Financial markets are heading for confusion and legal disputes unless more is done to shift away from the Eonia interest rate benchmark, the head of the ECB’s working group overseeing the transition said. Eonia will be replaced by the €STR benchmark in early October, after a series of market manipulation scandals

eroded confidence in the way the existing benchmark is calculated. Steven van Rijswijk, the steering group head and chief risk officer at Dutch bankING, said: “I am worried about complacencyamong market participants, especially as regards the change in the timing of the publication of Eonia, which takes place already on October 2 and creates very significant operational challenges.” Eonia is used to price about €22bn of interest rate derivatives, €2tn of cash market transactions — such as current accounts and overdrafts — and about €4.4bn of debt securities. In a report published yesterday, the ECB’s working group recommended that existing contracts should be

switched over from Eonia to €STR as soon as possible. “Millions of contracts need to be changed,” said Mr van Rijsw- ijk. “That will cost quite a bit of money.” The new system is designed to be more robust as it is based on the price of interbank transactions submitted daily by 50 banks; Eonia is set using estimates from a narrower group of lenders. Mr van Rijswijk said he was worried that if market participants were not ready for the transitionit would lead to “uncertainty and confusion around the pricing and valuation of financial products and instruments”. In the wake of the financial crisis banks were fined billions of dollars and some former employees were jailed for manipulating interest rate benchmarks.

Europe banks accused of ‘complacency’

on interest rate benchmark transition

summer when he said the export ban would be relaxed but this weekend he once again stepped up his rhetoric. “Huawei is a company we may not do business with at all,” he said. “We’re looking really not to do business... it’s difficult to determine what’s coming in, what’s not coming in; it’s still Huawei.” The US-China trade skirmish has sparked financial market tumult in recent weeks as fears grow over the toll it might take on the global economy. S&P Global, the rating group, said last week that “unpredictability on the trade front and deteriorating global back- drop” left its analysts on “high alert” over the outlook for the US economy.

Huawei products in the US and immedi- ately prohibit it from buying American- made goods. US officials argue that the company poses a risk to national security because its telecoms equipment could be used by Beijing for spying. Some big US telecoms and tech companies have lobbiedagainst the meas- ures, arguing they will be costly while not damaging Huawei, which can ship in many of its supplies from elsewhere. In response, the Trump administration issued a temporary exemptionin May. In recent months, Mr Trump has tied the fate of the company to the outcome of US-China trade talks. He appeared to offer an olive branch to Beijing in the

threat to national security. The reprieve will allow Google to continue updating its Android software on Huawei smart- phones, for example. It has been issued despite more hostile rhetoric from the US presidenttowards the company. Mr Ross said: “As we continue to urge consumers to transition away from Huawei’s products, we recognise that more time is necessary to prevent any disruption.” Separately, he told Fox Business that the move would give rural US telecoms companies“a little more time to wean themselves off” Huawei. Mr Trump took action against the Chinese company this year, announcing he would prepare the way for a ban on

KIRAN STACEY— WASHINGTON ADAM SAMSON— NEW YORK US technology companies will be allow- ed to continue selling toHuaweiunder some circumstances for another three months, after the US extended a temporary reprieve for groups such asGoogle. Wilbur Ross, the commerce secretary, said yesterday that Donald Trump’s administration would extend a temporary licence for companies to sell to the Chinese telecoms equipment maker if they were selling repairs or updates to existing systems. The exemption, which will apply for a further 90 days, applies only if the products in question are deemedto pose no

US extends Huawei tech reprieve

3 Some sales to China group exempted 3 Extra 90-day licence 3 Trump ratchets up rhetoric

Norwegian Airis to sell its stake in its profitable bank subsidiary as the low- cost carrier seeks to shore up its finances ahead of a crucial winter. The airline said yesterday that it had agreed to sell its 17.5 per cent shareholding in Norwegian Finans Holding, owner of Bank Norwegian, for NKr2.2bn ($245m) to a consortium of Swedish private equity firm Nordic Capitaland Finnish insurer Sampo. Norwegian faces a €250m bond repayment in December as well as annual worries over whether it can survive the winter, a perennially difficult time for airlines as fewer people travel in Europe and the US. Analysts and shareholders were divided over the saleat NKr68 per share, a premium of 15 per cent over Friday’s closing price. Investor Jan Petter Sissener said that while Norwegian needed cash, “it’s a better price for the buyer than the seller”. Geir Karlsen, Norwegian’s finance director and acting chief executive, said: “The sale of the NoFi shares is part of Norwegian’s strategy to strengthen our core airline operations and focus on the transition from growth to profitability.” Norwegian shares closed 4.05 per cent higher at NKr32.86. Richard Milne

Winter passage

Norwegian Air sells

stake in bank unit

Rural US telecoms

companies have ‘a little

more time to wean

themselves off ’ Huawei

Wilbur Ross

Companies / Sectors / People

Companies 7-Eleven........................................................ AOL................................................................. Advanced Micro Devices................... Airbnb............................................................. Alibaba............................................................. Allianz............................................................ Altria................................................................ Amazon.......................................................4, Anglo American....................................... Antofagasta............................................... Apple.............................................................. Atlassian....................................................... Authentic Brands.................................... Automattic.................................................. BHP Billiton................................................ BP.................................................................... Bank Norwegian....................................... Bank OZK..................................................... Bank of China.............................................. BlackRock..................................................... Brookfield..................................................... CK Asset Holdings....................10,14, CK Bidco....................................................... CNH Industrial......................................... Cambricon.................................................... Cerebras........................................................ Citizens.......................................................... Comerica....................................................... Coty................................................................. DS Smith......................................................

Deliveroo........................................................ Deutsche Bank......................................... Dialog Semiconductor......................... Don Quijote................................................ EI Group....................................................... EI Group ...................................................... Ele.me............................................................... Estée Lauder.......................................10, Facebook..................................................4, FamilyMart.................................................. Fresnillo........................................................ GAM................................................................. Gap.................................................................. Genworth...................................................... Glencore.................................................19, Goldman Sachs........................................ Google...................................................4,10, Graphcore..................................................... Greene King...................................10,14, Greenland Minerals................................ Grok Ventures........................................... H2O Asset Management.................... HSBC...........................................................7, Habana Labs.............................................. Heineken...................................................... Hines................................................................. Huawei.................................................7,11, ICBC................................................................... IFood................................................................. IMCD............................................................... ING....................................................................

IPGL................................................................. Imperial Brands........................................ Intel.................................................................. Itochu............................................................. JD Wetherspoon..................................... JPMorgan....................................................... Juul Labs...................................................... Juvenescence............................................. Kobe Bussan.............................................. Kohl’s............................................................. La Perla......................................................... Lawson.......................................................... Liberum ....................................................... Longevity..................................................... Longreads.................................................... Lundin Petroleum.................................. L’Oréal........................................................... Macy’s............................................................ Marston’s..................................................... Meituan........................................................... Mendon Capital........................................ Micron Technology............................... Microsoft................................................13, Mowi............................................................... Naspers........................................................... National Pension Service.................... Natixis............................................................ Nordic Capital............................................ Norwegian Air............................................ Norwegian Finans Holding................ Nvidia............................................................

Ocado............................................................ OpenAI........................................................... PG&E.............................................................. Palantir........................................................... Pan Pacific International.................... People’s United......................................... Persimmon.................................................. Ping An............................................................ Procter & Gamble................................... Punch Taverns...................................10, Reckitt Benckiser.................................... Regions Bank............................................. Revlon............................................................ Royal Dutch Shell.................................. Sainsbury’s................................................. SalMar........................................................... Sampo............................................................. Samsung.................................................12, Shenghe Resources............................... Silicon Valley Bank................................. Slack................................................................ Stena................................................................. Stonegate..................................................... Swiggy............................................................. Tanbreez Mining..................................... Tennor Holding........................................ Tumblr........................................................... Uber................................................................... Verizon Media........................................... WPP................................................................. Wave Computing.....................................

Wells Fargo................................................ Woodford...................................................... WordPress................................................... Yahoo............................................................. Zion Bancorp.............................................. Sectors Airlines............................................................ Automobiles............................................... Banks...............................................7,11,13, Basic Resources....................................... Chemicals.................................................... Financials..................................7,11,12,13, Food & Beverage.............................14, Healthcare................................................... Industrials................................................... Media.............................................................. Mining................................................14,19, Oil & Gas..................................................... Personal & Household Goods...10, Pharmaceuticals....................................... Property.......................................................... Retail........................................................10, Retail & Consumer................................. Technology.....................4,10,12,13,14, Tobacco........................................................ Travel & Leisure...................................... People Cannon-Brookes, Mike......................... Colin Magnus, George.......................... Cook, Tim....................................................

Cooper, Alison........................................... Fairburn, Jeff............................................. Feldman, Andrew.................................... Fink, Larry.................................................... Flint, John................................................7, Gergel, Simon............................................ Gulliver, Stuart............................................ Illg, Larry........................................................ Jamie Dimon, .............................................. Kalanick, Travis.......................................... Kapoor, Rakesh........................................ Karlsen, Geir................................................ Khosrowshahi,Amir............................... Kim, Sung-joo............................................ Lee, Jae-yong............................................ Li, Ka-shing......................................7,10, Li, Victor....................................................... Mair, John.................................................... Mellon, Jim................................................... Mullenweg, Matt...................................... Saun, Bruce van....................................... Scaglia, Silvio............................................. Schutz, Anton............................................ Sorrell, Martin............................................ Spencer, Michael...................................... Stackelberg, Nico von.......................... Tucker, Mark................................................ Wanzhou, Meng.......................................... Williamson, Mark..................................... Windhorst, Lars........................................ Wong, Helen.................................................

CovetedRare resources explain Trump’s

sudden interest in Greenland— ANALYSIS, PAGE 14

Rock, paper.. .Fink turns his disruptive

sights on private equity— INSIDE FINANCE, PAGE 12

Jonathan

Wheatley

Tail

Risk

Street protests in Hong Kong at the weekend were mercifully peaceful despite rising tensions between Asia’s leading financial hub and the authorities in Beijing. But the absence of clashes between protesters and police after 10 weeks of sometimes violent demonstrations will do little to calm the nerves of investors. They face radical uncertainty on at least two fronts: how China’s authorities will react to Hong Kong’s political crisis, and how the trade war between China and the US will play out given President Donald Trump’s yo-yo-like alternation between confrontation and conciliation. Deriving from those uncertainties is a third unknown: the path of the renminbi after its break this month below the threshold of Rmb7 to the US dollar. Any further fall in value is a threat to Chinese households, investors and corporate borrowers — by far the biggest issuers of foreign currency bonds from emerging markets this year. It is also a threat to investors across the emerging world, as the currencies of China’s trading partners fall in tandem. A weakening renminbi is likely to trigger capital flight from China. If such flows became significant, they would add to pressure on the currency. Signs are emerging that outflows may indeed be gathering pace. Beijing has waged war on such outflows since a shock devaluation of the renminbi in August 2015. It has largely succeeded in holdingits foreign exchange reserves stable at about $3tn. Indeed, the most recently available monthly data suggest there was only a minimal reduction inJuly, after capital outflows of $21bn in the first quarter and $85bn in the second. Tommy Wu, senior economist at Oxford Economics in Hong Kong, said this might reflect expectationsthat Beijing will hold the renminbi close to its current level rather than allowing any significant devaluation. How- ever, he added, such monthly data gave only an incomplete picture. For a fuller understanding, investors have to wait for quarterly balance of payments data. Since 2015, China’s BoP data have shown significant out- flowsin the form of “errors and omissions” — a catch-all term for largely unexplained differences between reported flows and the end-of-period capital position. In the first quarter of this yearthere was also a significant outflow in the “other investment” line, another catch-all, largely for bank-intermediated flows such as loans and trade finance. This showed that non-residents withdrew more than $28bn from China in the first quarter — the first such outflow since the first quarter of 2016. Robin Brooks, chief economist at the Institute of International Finance, said such that behaviourcorrelated with expectations of a weaker renminbi. “If there is a canary in the coal mine, it’s that flow,” he said.

[email protected]

A further fall in

the renminbi is a

threat to Chinese households

and corporate borrowers

David Peacock

                  

RELEASED RELEASED

DS Smith

RELEASED

DS SmithBY

CotyCotyBY BY .................................................................................................................................. DS SmithDS SmithBY

"What's

....................................................

"What's

.................................................... ........................................................

"What's

........................................................ .......................................................... "What's

.......................................................... ComericaComerica"What's

News"

....................

News"

.................... ....................................................... News"

....................................................... ......................................... News"

......................................... ........................................................................................................News"

VK.COM/WSNWS VK.COM/WSNWS

© VK.COM/WSNWS

©The Financial Times Limited 2019 VK.COM/WSNWS

The Financial Times Limited 2019

....................................................

VK.COM/WSNWS

.................................................... ........................................................

VK.COM/WSNWS

........................................................ ..........................................................

VK.COM/WSNWS

.......................................................... .......................................................

VK.COM/WSNWS

....................................................... .................................................................

VK.COM/WSNWS

................................................................. DS Smith

VK.COM/WSNWS

DS Smith......................................................

VK.COM/WSNWS

......................................................

TELEGRAM: TELEGRAM:

TELEGRAM:

t.me/whatsnws t.me/whatsnws The Financial Times Limited 2019

t.me/whatsnws The Financial Times Limited 2019

....................................................

t.me/whatsnws

.................................................... ........................................................

t.me/whatsnws

........................................................ ..........................................................

t.me/whatsnws

.......................................................... .......................................................

t.me/whatsnws

....................................................... .................................................................

t.me/whatsnws

................................................................. ...................................................... t.me/whatsnws

......................................................

Financial Times Europe - 20.08.2019

US extends Huawei tech reprieve

Tail

Risk

Get our desktop app

Company

Features

Documentation

Resources