Where the UK Stands with No-Deal Brexit Back on the TableJul31

Daily Intelligence Briefing

Tuesday, July 30, 2019

UK

UK manufacturing output and optimism tumble to multi-year lows, CBI survey shows

Nineteen per cent of manufacturers said output was up and 30 per cent said it was down, giving a balance of -11 per cent – the lowest since July 2009 when Britain had just emerged from the deep recession that followed the financial crisis. The measure of firms’ confidence about the general business situation was -32 per cent, the lowest since July 2016, just after the EU referendum.

Rain Newton-Smith, chief economist at the CBI, said the sector was undermined by “the double blow” of Brexit uncertainty and slower global growth. All of the CBI’s seven measures of activity over the past three months, which include output, new orders and employment, hit multi-year lows.

A number of economists think the economy contracted slightly in the second quarter, and another fall in GDP in the current quarter would tip Britain into a recession. Two bodies providing closely watched forecasts, the National Institute of Economic and Social Research and the Office for Budget Responsibility, have in recent days warned of such a possibility.

The CBI survey showed that manufacturing activity was expected to pick up over the next three months, with the output balance rising to +6 per cent. However, investment plans for the next 12 months weakened. Uncertainty about future demand was the most-cited reason but labour shortages were also a concern.

Read the full article from The Independent +

UK

Mortgage borrowing rise signals stabilisation in UK house market

UK mortgage borrowing picked up slightly in June, suggesting the housing market may be regaining some stability after stalling in the run-up to the original March Brexit deadline. Figures released by the Bank of England on Monday showed mortgage approvals for house purchases — an indicator of future lending — increased by about 800 to 66,400 in June, slightly higher than analysts had expected and above the monthly rate of 60,000 projected by the BoE in its May inflation report.

Households’ net mortgage borrowing of £3.7bn was also higher than in May, although the annual growth rate of mortgage lending remained stable at 3.1 per cent — around the level it has been at since the vote to leave the EU in 2016.

Brexit-related uncertainty and political turmoil has weighed on UK property markets, with house price growth slowing across the country and prices falling sharply over the past year in London. However, the most recent data have pointed to a modest improvement, with surveyors polled by RICS, the industry association, becoming less pessimistic about market dynamics.

Howard Archer, economist at the consultancy EY Item Club, said the reprieve from a disruptive Brexit in March, together with better consumer purchasing power and strong jobs growth, had helped, although “the overall benefit has been relatively limited”.

Read the full article from Financial Times +

UK

Maybe Banks Really Aren’t Worried About Brexit

The volume of business that the banks do out of their U.K. offices has changed surprisingly little. London has long served as a nexus for international lending — and not just by U.K. banks. A German bank might use its U.K. subsidiary to lend to a Guernsey hedge fund. A U.S. bank’s London office might lend to a French industrial company. The Bank for International Settlements tracks these cross-border claims, which serve as a useful indicator of the U.K. capital’s financial preeminence.

All told, according to the Bank for International Settlements, the claims of banks’ U.K. offices on borrowers in other countries have increased by a cumulative $250 billion since Britons voted to leave the EU in June 2016. That’s not huge in relation to the nearly $5 trillion in total claims outstanding, and pretty close to the average rate of growth for the past few decades.

Given the risks, why aren’t banks fleeing? One possible explanation is that there’s no need to hurry: Once they’ve prepared their offices elsewhere in Europe, it’s easy to move the assets when necessary. Another possibility is that bankers don’t believe the U.K. will actually leave, and hence aren’t really prepared. If so, Britain’s exit, if it happens, could prove a lot more surprising — and a lot more damaging — than it otherwise would be.

Read the full article from Bloomberg +

UK

Bank of England warns no-deal Brexit could trigger economic shock

The Bank of England has warned that a no-deal Brexit could trigger a material shock to the UK economy while causing widespread disruption for EU companies by cutting them off from London-based banks.

Stating that the risk of Britain crashing out without a deal had risen, the Bank said the City of London was ready to withstand such a scenario and avoid banks failing, as they did in the financial crisis. However, there would still be major disruption for companies.

Mark Carney, the Bank’s governor, said: “The perceived likelihood of no-deal Brexit has increased since last year. Although the degree of preparedness for such a scenario has improved, material risks still remain.” He said the absence of further action by Brussels to get ready for Brexit could leave the door open to disruption for banks and their customers in the EU, while warning that the UK would face “material economic disruption” from a no-deal departure.

Against the backdrop of a rising threat of a no-deal Brexit, the central bank used its twice yearly financial stability report to say that UK, EU and international banks operating in London had made progress planning for a disorderly departure. However, it warned that about half of EU companies using banks registered in Britain could be cut off from their banking services after the Halloween Brexit date, as they had yet to fully prepare.

Read the full article from The Guardian +

SHORT

Airlines

LONG

CRISPR

LONG

Robotics & Automation

LONG

Solar

LONG

Vietnam

SHORT

Autos

LONG

Electric Utilities

LONG

Silver

SHORT

U.S. Pharmaceuticals

LONG

3D Printing

Dallas Fed Manufacturing Index Improves in July

The Federal Reserve Bank of Dallas’ general business activity index for manufacturing in Texas rose to -6.3 in July 2019 from a three-year low of -12.1 in June and compared with market expectations of -5.

Click here to access the data +

Sterling Tumbles Below $1.22

The British pound dropped to as low as $1.212 on Tuesday morning, its lowest level since March 2017, amid raising concerns about a no-deal Brexit after prime minister Boris Johnson announced the government is preparing to leave the EU on October 31st with or without a deal. Against the euro, sterling touched 91.89 pence, its weakest since September 2017.

Click here to access the data +

Oil Prices Rise on Fed Rate Expectations

Oil prices increased on Monday, as expectations of an interest rate cut by the Fed offset fears over a global economic slowdown and persistent pessimism over US-China trade talks. US crude oil went up 0.9% to 56.69 per barrel and Brent crude oil rose 0.2% to $63.57 a barrel around 02:00 PM New York time.

Click here to access the data +

Natural Gas Extends Losses to Over 3-Year Low

Natural gas prices slumped as much as 1.8% to $2.13/MMBtu on Monday, hitting the lowest level since May 2016, as temperatures for the second week of August are forecast to be warmer-than-expected. Also, record levels of production, mainly from Appalachian and Permian Basin, have been adding additional pressure to prices.

Click here to access the data +

Economics & Trade

UK

UK manufacturing output and optimism tumble to multi-year lows, CBI survey shows

Nineteen per cent of manufacturers said output was up and 30 per cent said it was down, giving a balance of -11 per cent – the lowest since July 2009 when Britain had just emerged from the deep recession that followed the financial crisis. The measure of firms’ confidence about the general business situation was -32 per cent, the lowest since July 2016, just after the EU referendum.

Rain Newton-Smith, chief economist at the CBI, said the sector was undermined by “the double blow” of Brexit uncertainty and slower global growth. All of the CBI’s seven measures of activity over the past three months, which include output, new orders and employment, hit multi-year lows.

A number of economists think the economy contracted slightly in the second quarter, and another fall in GDP in the current quarter would tip Britain into a recession. Two bodies providing closely watched forecasts, the National Institute of Economic and Social Research and the Office for Budget Responsibility, have in recent days warned of such a possibility.

The CBI survey showed that manufacturing activity was expected to pick up over the next three months, with the output balance rising to +6 per cent. However, investment plans for the next 12 months weakened. Uncertainty about future demand was the most-cited reason but labour shortages were also a concern.

Read the full article from The Independent +

UK

Mortgage borrowing rise signals stabilisation in UK house market

UK mortgage borrowing picked up slightly in June, suggesting the housing market may be regaining some stability after stalling in the run-up to the original March Brexit deadline. Figures released by the Bank of England on Monday showed mortgage approvals for house purchases — an indicator of future lending — increased by about 800 to 66,400 in June, slightly higher than analysts had expected and above the monthly rate of 60,000 projected by the BoE in its May inflation report.

Households’ net mortgage borrowing of £3.7bn was also higher than in May, although the annual growth rate of mortgage lending remained stable at 3.1 per cent — around the level it has been at since the vote to leave the EU in 2016.

Brexit-related uncertainty and political turmoil has weighed on UK property markets, with house price growth slowing across the country and prices falling sharply over the past year in London. However, the most recent data have pointed to a modest improvement, with surveyors polled by RICS, the industry association, becoming less pessimistic about market dynamics.

Howard Archer, economist at the consultancy EY Item Club, said the reprieve from a disruptive Brexit in March, together with better consumer purchasing power and strong jobs growth, had helped, although “the overall benefit has been relatively limited”.

Read the full article from Financial Times +

UK

Maybe Banks Really Aren’t Worried About Brexit

The volume of business that the banks do out of their U.K. offices has changed surprisingly little. London has long served as a nexus for international lending — and not just by U.K. banks. A German bank might use its U.K. subsidiary to lend to a Guernsey hedge fund. A U.S. bank’s London office might lend to a French industrial company. The Bank for International Settlements tracks these cross-border claims, which serve as a useful indicator of the U.K. capital’s financial preeminence.

All told, according to the Bank for International Settlements, the claims of banks’ U.K. offices on borrowers in other countries have increased by a cumulative $250 billion since Britons voted to leave the EU in June 2016. That’s not huge in relation to the nearly $5 trillion in total claims outstanding, and pretty close to the average rate of growth for the past few decades.

Given the risks, why aren’t banks fleeing? One possible explanation is that there’s no need to hurry: Once they’ve prepared their offices elsewhere in Europe, it’s easy to move the assets when necessary. Another possibility is that bankers don’t believe the U.K. will actually leave, and hence aren’t really prepared. If so, Britain’s exit, if it happens, could prove a lot more surprising — and a lot more damaging — than it otherwise would be.

Read the full article from Bloomberg +

UK

Bank of England warns no-deal Brexit could trigger economic shock

The Bank of England has warned that a no-deal Brexit could trigger a material shock to the UK economy while causing widespread disruption for EU companies by cutting them off from London-based banks.

Stating that the risk of Britain crashing out without a deal had risen, the Bank said the City of London was ready to withstand such a scenario and avoid banks failing, as they did in the financial crisis. However, there would still be major disruption for companies.

Mark Carney, the Bank’s governor, said: “The perceived likelihood of no-deal Brexit has increased since last year. Although the degree of preparedness for such a scenario has improved, material risks still remain.” He said the absence of further action by Brussels to get ready for Brexit could leave the door open to disruption for banks and their customers in the EU, while warning that the UK would face “material economic disruption” from a no-deal departure.

Against the backdrop of a rising threat of a no-deal Brexit, the central bank used its twice yearly financial stability report to say that UK, EU and international banks operating in London had made progress planning for a disorderly departure. However, it warned that about half of EU companies using banks registered in Britain could be cut off from their banking services after the Halloween Brexit date, as they had yet to fully prepare.

Read the full article from The Guardian +

Eurozone

Europe Is About to Find Out How Bad the Economy Has Become

Mario Draghi didn’t pull his punches when he said the economic outlook is getting “worse and worse.” This week, he’ll get more insight into how bad it really is out there. Growth probably slowed to 0.2% in the second quarter, a below-trend pace that will do little to help the European Central Bank president’s effort to push inflation higher. Business surveys across the region will provide a detailed look at how companies are coping with trade tensions and weaker demand, and may put to rest any hopes for a better performance this quarter.

The feeble economic backdrop is also hitting corporate Europe, particularly carmakers, with downbeat statements recently from companies including Germany’s Daimler and France’s Renault. Services growth is still helping to counter that, but may only be able to prop things up for so long.

There may also be disappointing news on inflation this week, with both the headline and core rates down near 1%. A survey last Friday showed longer-term inflation expectations are falling, and it’s pretty clear what Draghi thinks about that. “We don’t like what we see on the inflation front,” he said last week.

Draghi has given staff at the ECB and national central banks a mission before the next meeting to examine what policy makers can do to help the economy. More interest rate cuts and a new round of bond purchases are on that list, despite some doubts about how much room there’s left for both tools.

Read the full article from Bloomberg +

LatAm

Latin America trade grows as China and US tussle for influence

The growing importance of China to Brazil’s economy has created a difficult position for President Jair Bolsonaro, who accused Beijing of trying to buy Brazil during his election campaign, but changed tack on assuming office in January.

In March, Bolsonaro called China his country’s “main partner, politically as well as economically and commercially” and announced plans to travel to Beijing this year, a visit that was confirmed on Tuesday for late October.

China is now Latin America’s second-biggest trading partner with bilateral trade at US$307.4 billion, growing 18.9 per cent over the previous year, according to China’s Ministry of Commerce, in a relationship focused on commodity imports, including mining products like copper and energy, as well as soybeans and other agricultural goods.

Gustavo Oliveira, assistant professor of global and international studies at the University of California, Irvine, said domestic contradictions in most Latin American countries complicated relations with China, as few leaders had the capacity to press or leverage China for much. “Unfortunately, therefore, most in this crop of Latin American leaders are basically placing themselves as junior partners or pawns in the geopolitical tug of war between the US and China.”

Read the full article from South China Morning Post +

Services

Plant-Based

“Eggless” Eggs Made From Plants Land First Fast Food Deal

According to a new CNBC story, Canadian chain Tim Hortons has struck a deal with JUST Inc. to start selling the company’s plant-based eggs in select restaurants — making it the first major fast-food chain to take a chance on the chicken-less eggs.

Mung beans are the primary protein in JUST Eggs, which the company claims on its website scramble up just like chicken eggs — no surprise, then, that Tim Hortons plans to use them for omelettes. However, don’t expect to see the plant-based eggs showing up in any of the chain’s muffins or Timbits: JUST Inc. does not recommend using them for baking.

This isn’t Tim Hortons’ first foray into plant-based meat. The company started selling sandwiches containing Beyond Meat’s imitation breakfast sausage in May. Then, in July it began offering customers two burgers made with Beyond Meat’s plant-based patties.

In a statement shared with CNBC, Tim Hortons spokeswoman Jane Almeida also didn’t rule out adding more alt-meat foods to the menu — another sign that the plant-based protein revolution may be just beginning.

Read the full article from Futurism +

Technology

5G

China’s 5G economy takes shape as carriers step up investment

China’s state-run telecommunications companies are rushing to usher in the 5G era, not only for consumers but also for industries that stand on the cusp of data-driven technological transformations — from steelmaking to health care.

China Mobile aims to build over 50,000 5G base stations in more than 50 cities across the vast mainland, enabling it to launch commercial service by the end of this year. Chairman Yang Jie announced the strategy on the sidelines of the Mobile World Congress 2019 in Shanghai in late June. The company also intends to launch its own smartphone brand and, in 2020, expand the base station network to around 300 cities.

The wave of construction and investment by China Mobile and other state carriers means more than just the arrival of lightning-fast transmissions. For the government, it is a way to spur job creation and support embattled equipment suppliers like Huawei Technologies as the trade conflict with the U.S. drags on.

Fellow state player China Unicom is poised to launch 5G trial services in 40 cities, including Shanghai. President Li Guohua has said the company will use 5G to promote the spread of digital devices in China. In addition to services for the general public, China Unicom has plans to tie up with major manufacturers and other companies to expand the industrial use of 5G.

Read the full article from Nikkei Asian Review +

Cloud Computing

Cloud Computing Is Here. Cloud Recycling Is Next.

Large data centers are mushrooming in number as global demand grows for storage of everything from emails to videogames. Investment in cloud infrastructure has surged since 2015, and the market for data-center equipment is expected to grow at an average annualized rate of roughly 16% this year and next, according to Citigroup Inc.

Cloud servers, though, typically have a lifespan of only about three years, according to experts, meaning that some of the earliest equipment already has passed its use-by date. The rapid pace of technological change is creating a new market for companies such as Sims Metal Management Ltd.—one of America’s biggest recyclers by volume—and California-based Electronic Recyclers International Inc., known as ERI.

Data-center equipment contains components such as processors and fans that can be stripped out and resold in the electronics market. They also contain metals such as aluminum, copper and steel that many experts think will become more valuable as large economies such as China rely more on consumption and less on exports for growth.

Sims and ERI are separately involved in trials to handle the recycling of small amounts of cloud-computing material in the U.S., betting on a sharp pickup in volumes in the years ahead. The pilot efforts come as scrap-metal companies seek to reinvigorate profits dented by rising trade barriers and weak commodity prices.

Read the full article from The Wall Street Journal +

Cloud Computing

AWS to encounter IaaS market ‘erosion’ as contenders mature

Year in and year out industry weighs the merits of adopting AWS when its parent company Amazon keeps disrupting new markets, like retail and grocery. Microsoft is seen as a tempting alternative and the vendor has focused on making nice with fellow providers, prioritizing interoperability over cloud politics in partnerships with companies like Oracle. Google Cloud, meanwhile, wants maturity. With a new CEO at the helm, its sales push aims to yield big name, Fortune 500 customers.

In its 2019 IaaS worldwide Magic Quadrant, Gartner marks AWS, Microsoft and Google as IaaS leaders. Oracle, Alibaba Cloud and IBM trail as niche players. AWS is the de facto market champion, accounting for 47.8% of the 2018 IaaS public cloud services market share, according to Gartner analysis released Monday. AWS has more than three times the market share of Microsoft, which has 15.5%. Alibaba, Google and IBM round out the top five.

All told, the top five account for 77% of the IaaS market. That, however, doesn’t capture the full picture. AWS’s growth rate between 2017 and 2018 was 26.8%. Meanwhile, Microsoft and Google each grew more than 60% year-over-year, according to Gartner. Alibaba grew more than 92%. Amazon will continue to see market “erosion” as other vendors reach feature parity across data centers, Sid Nag, VP analyst at Gartner, told CIO Dive. While the order of the market ranking has remained the same, the dynamics have changed, marked by a surge from Azure, Alibaba and Google.

Read the full article from CIO Dive +

Transportation

Aviation

Boeing reportedly kept the FAA in the dark about big changes it made to the 737 Max’s flight-control software late in its development

The Federal Aviation Administration was poorly positioned to oversee the safety of the automated flight system that was to blame for the two deadly crashes of Boeing’s 737 Max plane over the last year, The New York Times reported Saturday.

The agency engineers in charge of keeping a watch on the airplane’s flight control systems through the latter part of its development had little experience with such software, according to The Times report. And Boeing largely kept them in the dark about the importance of the flight-control system on the 737 Max and a crucial change they made to the software soon before releasing the plane commercially, The Times reported.

In a statement emailed to Business Insider, Boeing spokesman Peter Pedraza said the company actually had informed the FAA about changes it made to the flight-control system, dubbed MCAS, during the 737 Max’s development.

FAA spokesman Lynn Lunsford declined to comment on The Times’ report. The agency’s certification process for the 737 Max is the subject of multiple investigations and reviews, he said in an emailed statement.

Read the full article from Business Insider +

EVs

India to add 5,000+ electric buses in 65 cities in ongoing massive EV push

An Indian government committee has sanctioned 5,645 electric buses for 65 cities in one of the largest electric bus initiatives the world has seen outside of China.

The announcement came on Twitter from Amitabh Kant, the CEO of the government’s Niti Aayog commission. Kant tweeted about approval for the buses, which will be made in India by eight State Transport Undertakings. The country is also particularly focused on using clean energy to charge its expected boom in electric vehicles.

The announcement about electric buses follows another announcement this weekend that India will be cutting taxes on electric vehicles — it’s reducing the electric car tax from 12% to 5%, and cutting taxes on EV chargers from 18% to 5%.

While no timeframe has been given yet for when India seeks to have these thousands of electric buses in place, the initiative stands out, both for its number of cities and its sheer size. It doesn’t stack up to what China’s done so far — the city of Shenzhen alone electrified its entire 16,000+ bus fleet by the end of 2017 — but India’s goals certainly compare favorably to any other country when it comes to future electric bus plans.

Read the full article from Electrek +