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Money markets raise bets that British interest rates will drop below zero

LONDON (Reuters) – Money markets ramped up expectations of negative interest rates in the United Kingdom for the first time ever as policymakers debated further steps to support the struggling British economy, yanking the pound to more than a three-week low.

Unlike the United States where Federal Reserve officials have portrayed a more unified stance in dismissing negative interest rate talk, comments by Andy Haldane, the Bank of England’s chief economist, over the weekend fuelled speculation that British officials are not averse going down that path.

“While we don’t think that negative interest rates are a near term possibility as the central bank has a few more bullets left, Haldane’s comments opens the door to that possibility,” said Lee Hardman, an FX strategist at MUFG in London.

The central bank is looking more urgently at options such as negative interest rates and buying riskier assets to prop up the country’s economy as it slides into a deep coronavirus-driven slump, Haldane was quoted as saying in the Telegraph newspaper over the weekend.

Top BoE officials have previously expressed objections to taking rates below zero – as the central banks of the euro zone and Japan have done – because it might hinder the ability of banks in Britain to lend and hurt rather than help the economy.

But with the BoE’s benchmark at an all-time low of 0.1% and Britain facing potentially its sharpest economic downturn in 300 years, talk of cutting rates to below zero has resurfaced.

Futures contracts from December 2020 have dipped into negative territory while contracts maturing in June 2021 are pricing in as much as minus 0.03% in benchmark policy rates.

The possibility of negative interest rates would also hurt the pound more at a time when the stalemate between Britain and the EU on Brexit talks is keeping investor sentiment downbeat.

The latest round of Brexit negotiations has raised the prospect that there will be no deal struck on Britain’s formal departure from the bloc after the end of the current transition period at the end of this year.

Reporting by Saikat Chatterjee; Editing by Simon Jessop and Toby Chopra


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Africa’s GDP to grow by $300 billion a year should countries adopt technology

Finance Minister Ken Ofori-Atta says research has revealed that Africa’s Gross Domestic Product (GDP) will grow by $300 billion a year by 2025 should African countries adopt digital technology.

He said there is the need for African countries to fast-track policies and programmes towards leveraging on technology for economic growth.

“If we digitise as a continent, we can see 10 per cent growth of our GDP because of technology.
“South Africa reduced cost by 22 per cent and revenues picked up in Rwanda by six per cent because of digital technology,” he said.

Mr Ofori-Atta made these remarks when speaking at the launch of an Integrated ICT System for Microfinance and Small Loans Centre(MASLOC) at the Jubilee House, in Accra.

The IT system is an innovative solution to address payment and settlement challenges facing MASLOC to enhance transparency and accountability in the disbursement and recovery of loans.

Mr Ofori-Atta lauded Vice President Bawumia for championing the government’s digitisation agenda saying it is the way forward towards formalising and transforming the Ghanaian economy.

However, the Minister admitted that the country has not reached digital maturity yet, and underlined the need to continue pursuing digital infrastructure to accomplish that agenda.

Commenting on the impact of the COVID-19 pandemic on the Ghanaian economy, the Finance Minister admitted that it was practically impossible for government to sustain the economy following the imposition of a partial lockdown in Accra, Tema, Kasoa and Greater Kumasi.

He explained that it was largely due to the fact that, majority of the country’s population worked in the informal sector, therefore, after three weeks of lockdown, government was left with little choice to lift the restriction on movements.

“When you look at what happened during the lockdown. It was quite clear after a point that given that 90 per cent of our population is informal and they go out each day to earn wages, it became increasingly impossible to continue with such a policy,” he added.


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Global oil demand forecast slightly improves as lockdowns ease, says International Energy Agency

Global oil demand is likely to increase slightly during 2020 as lockdowns are gradually eased around the world, according to the International Energy Agency (IEA).

Better than expected mobility across the countries which form the Organisation for Economic Co-operation and Development has also helped increase demand, it said.

The IEA has now revised upward its global oil demand outlook for 2020.

The organization now expects oil demand to fall by 8.6 million barrels per day in 2020 instead of 9.3 million barrels per day which was the estimate in its previous forecast, published in April.

This is still sharply down on demand from 2019 and marks a record drop in global oil demand.

“The gradual relaxation of restrictions on movement is helping demand. We estimate that from a recent peak of 4 billion, the number of people living under some form of confinement at the end of May will drop to about 2.8 billion worldwide,” the organization said in a report.
“Mobility still remains limited for many citizens, but businesses are starting to reopen gradually and people are returning to work, which will provide a boost to oil demand, albeit a modest one at first.”
The IEA noted that economic activity was beginning a gradual but fragile recovery but warned that major uncertainties remain.

“The biggest is whether governments can ease the lockdown measures without sparking a resurgence of Covid-19 outbreaks,” it said.


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Storm clouds gather over U.S. stocks as hopes of quick recovery fade

(Reuters) – A lightning-quick rally in U.S. equities is showing cracks, as investors face mounting evidence that the economy’s coronavirus-fueled woes may be far longer-lasting than many had anticipated.

FILE PHOTO: The New York Stock Exchange (NYSE) is seen in the financial district of lower Manhattan during the outbreak of the coronavirus disease (COVID-19) in New York City, U.S., April 26, 2020. REUTERS/Jeenah Moon
For weeks, hopes that massive stimulus from the Federal Reserve and U.S. government would set the stage for a recovery later in the year fueled a blistering rebound in stocks even as the worst drop-off in jobs since the Great Depression slammed the economy.

But recent comments from top officials have undercut the case for a speedy economic recovery even as states ease lockdown restrictions, forcing investors to factor in a protracted downturn that would likely weigh on stocks while fueling flows to bonds and other safe-haven assets.

After surging over 30% in just over a month, the S&P 500 .SPX benchmark stock index has edged down about 4% since late April. Equity-focused funds have seen three straight weeks of outflows totaling around $30 billion, analysts at Deutsche Bank said in a report. In contrast, bond funds have notched inflows for four consecutive weeks, drawing nearly $47 billion, the bank said.

“There’s still a lot of uncertainty out there,” said Nela Richardson, investment strategist with Edward Jones. “There’s corporate earnings uncertainty, there’s economic uncertainty, and then there’s just the behavioral adjustment of consumers … facing down a health risk and trying to restart their lives.”

Federal Reserve Chairman Jerome Powell warned on Wednesday of an “extended period” of weak economic growth, citing concerns over how well future outbreaks of the virus can be controlled and how quickly a vaccine or therapy can be developed.

Those comments came a day after the nation’s top infectious disease expert, Dr. Anthony Fauci, told Congress that U.S. states lifting sweeping lockdowns could touch off new outbreaks of COVID-19, the respiratory disease caused by the coronavirus, which has killed over 80,000 Americans.

In addition, there are renewed tensions between the United States and China, a reminder of the trade tensions between the world’s two largest economies that rattled stocks throughout 2019, and some predictions of deflationary pressures on prices.

“Skepticism abounds regarding the likelihood the rally will continue,” analysts at Goldman Sachs said in a recent note to clients. “A single catalyst may not spark a pullback, but concerns exist that we believe … investors are dismissing.”

Concerns include $103 billion in expected bank loan losses over the next four quarters, a lack of stock buybacks and domestic and global political uncertainty, the bank said.

Several big-name investors have warned in recent days about the rally in equities becoming overextended. David Tepper of hedge fund Appaloosa Management told CNBC on Wednesday that the current market was the second most overvalued he has ever seen.

Famed hedge fund manager Stanley Druckenmiller told the Economic Club of New York here on Tuesday that the risk-reward here in today’s market was “maybe as bad as I’ve seen it in my career.”

The concentration of the market’s gains in a small group of technology and internet stocks, obscuring the underperformance of other areas, is also sending a cautionary note.

The average stock in the S&P 500 is down 8.7% since April 29, more than double the index’s losses since that date, according to an analysis by Bespoke Investment Group.

An extended resurgence of stock market volatility could accelerate flows into fixed-income assets, which have recently drawn investors seeking to benefit from the Fed’s expanded bond-buying program.

“The stock market is indicating that we are going to continue to move toward recovery whereas the bond market is just kind of sitting there,” said Walter Todd, chief investment officer at Greenwood Capital.

The yield on the benchmark 10-year Treasury note US10YT=RR has stayed in a tight range in recent weeks after falling sharply in late March. Bond yields move inversely to prices.

The rally in stocks may have left equities more vulnerable to bad news, including problems that U.S. states may encounter as they move to reopen their economies in coming weeks, said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute.

“There is probably more downside in equity prices than there is in bond yields,” Samana said. “The bond market is already fairly cautious in its positioning in terms of the view of the world that it has.”

(This story has been refiled to correct typographical error in headline.)

Reporting by Lewis Krauskopf; Additional reporting by Ross Kerber in Boston; Writing by Ira Iosebashvili; Editing by Leslie Adler

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