Ray S. Eñano, Editor business@thestandard.com.ph extrastory2000@gmail.com
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MONDAY, APRIL 24, 2017
Business
Top Fed exec sees two more rate hikes FEDERAL Reserve Vice Chairman Stanley Fischer said a recent patch of weak economic data likely won’t throw the US central bank off track for two more interest-rate increases this year. “There are reasons to think that the first quarter was, again, below what the rest of the year will be,” Fischer said Friday in an interview on CNBC. Asked if two more rate hikes for the year still feels appropriate, Fischer said, “We’re feeling that way and so far haven’t seen anything to change that.” Fischer also said that major economies around the world have recently shown signs of renewed strength, contributing to an optimistic tone at the ongoing spring meetings of the International Monetary Fund in Washington. “A large part of the upbeat tone comes from the fact that China is doing better, Europe is doing better,” he said. “We’re seeing positive changes throughout much of the world.” Fed officials raised rates in March and stuck to projections that signaled they would make a total of three quarter-point moves this year. Since then investors have pulled back on their expectations for rate hikes after a closely watched measure of inflation unexpectedly fell and estimates of first quarter growth have declined. The Atlanta Fed’s GDPNow gauge currently estimates that from January through March the economy grew at an annualized pace of 0.5 percent. “There is a very large weather aspect of the division between February and March data,” Fischer said. He also played down the drop in inflation. “The two surprises were energy prices and then a very large decline in the price of cell phone usage,” he said. “It actually had an impact on the overall inflation rate. So that is a one-time shock which we believe will not continue to reduce the inflation rate as we move ahead.” Asked about President Donald Trump’s comments that the dollar may be too strong, Fischer said, “We do not take a particular statement, by even a president, into account in making our decisions on the interest rate.” Bloomberg
IMF Managing Director Christine Lagarde and United States Treasury Secretary Steven Mnuchin hold a conversation on the US Economy at the World Bank IMF Spring Meetings April 22, 2017 in Washington, DC. AFP
IMF softens position vs trade protectionism T HE IMF’s steering committee adopted the position on trade taken by the Group of 20 last month in an effort to accommodate Donald Trump’s administration, which is considering how far to go in fulfilling the president’s campaign pledges to impose tariffs and reshape international accords.
A communique from the International Monetary and Financial Committee, released Saturday in Washington, said that officials “are working to strengthen the contribution of trade to our economies.” Such language echoes a statement last month from G-20 nations, which have a similar makeup as the IMF panel, reflecting the Trump administration’s call to rethink the global order for commerce. Like the G-20 communique, the committee’s statement omits a call from its previous missive in October to “resist all forms of protectionism.” Asked about that change, Agustin Carstens, the Mexican central bank governor
who serves as chairman of the IMF committee, said the statement still reflects broader agreement that nations want a level playing field on trade. “What we try to do in these types of meetings is to strike a positive, constructive balance,” Carstens said at a press briefing on Saturday. “And the use of the word protectionism is very ambiguous.” The main goal is to take advantage of trade, and “I think everyone is in line that we need free and fair trade,” which is reflected in the communique, he said. It’s unclear how far Trump will go in shaking up the workings of the global economy. For
example, Trump backed down from a campaign promise to label China a currency manipulator this month, and proposed changes to Nafta circulated in Congress fall short of his earlier get-tough message. Since the joint statements at gatherings such as the G-20 and the IMF require assent from members, the change in the US position on trade from the Obama administration is forcing modifications in language that was previously uncontroversial. In addition to the trade stance, the latest communique omits language from October that welcomed “the entry into force of the Paris Agreement on climate change.” Trump is contemplating whether to make good on his campaign promise to withdraw from the deal. IMF Managing Director Christine Lagarde, speaking at the same briefing as Carstens, said the statement reflects support for her global policy agenda, which includes a call for countries to “not leave the mounting eco-
nomic consequences of climate change for future generations.” The IMF panel released the statement during the spring meetings of the International Monetary Fund and World Bank. The IMFC is the IMF’s top advisory panel, and is composed of 24 ministers and central bankers from nations including the US, China, Germany, Japan and France. Some positions remained little changed. The IMFC statement reiterated pledges from October to “refrain from competitive devaluations” of currencies and to avoid targeting “our exchange rates for competitive purposes.” The outlook for the world economy is sunnier than six months ago, with the statement saying that the “global economic recovery is gaining momentum, commodity prices have firmed up, and deflation risks are receding.” At the same time, “while the outlook is improving, growth is still modest and subject to heightened political and policy uncertainties.” Bloomberg
Venezuela crisis hits American companies WA S H I N G T O N ― T h e political and economic crisis in Venezuela is costing US companies dearly, as General Motors can attest following the unexpected nationalization of its plant there. The big auto-maker shut down its operations in Venezuela and laid off its 2,700 workers after the government on Wednesday seized the plant, which had been idle because of the chaotic market environment. The group had been operating in the South American country for 69 years. GM isn’t the only US business to be walloped by Venezuela’s crisis. Kimberly-Clark, a personalcare paper group, had its factory taken over last July, and posted a charge of $153 million to de-consolidate its Venezuela operations. Biscuit-maker Mondelez― behind America’s well-known Oreo brand―also took a onetime charge of $778 million to reconfigure its Venezuela operations as an investment in its accounts, to prevent them dragging the group’s earnings down. Although Mondelez products still sell in Venezuela, it’s unable to track sales. Same story for Pepsi, which reported a $1.4-billion loss last October from its Venezuela business. The conditions in Venezuela are a formidable challenge for any company, with hyperinflation, capital controls, political turbulence, mass demonstrations and consumers who have barely enough money to buy food and basic items. The country was once considered one of the juiciest markets for US businesses, boasting the biggest oil reserves in the world, a free-spending middle class with a taste for American products, and proximity. But a slump in global crude prices coupled with mismanagement has devastated the country’s economy. And nearly two decades of Socialist rule by late president Hugo Chavez and his successor Nicolas Maduro have badly frayed ties with the US, which has halved the amount of Venezuelan oil it imports. Venezuelan authorities regularly accuse Washington of being behind the unrest they are dealing with. US Secretary of State Rex Tillerson is in an uncomfortable position, having been the boss of American oil giant ExxonMobil before becoming President Donald Trump’s diplomatic chief. In 2014, the Venezuelan government was ordered by a World Bank disputes tribunal to pay ExxonMobil $1.4 billion for nationalizing an oil field. But that ruling was overturned on appeal in March this year to the World Bank’s International Center for Settlement of Investment Disputes. AFP
Bordeaux ’16 vintage quality likely to push wine prices higher By Guy Collins THE Bordeaux 2016 vintage is shaping up to be potentially the best for at least six years, comparable in structure and richness with the landmark 2009 and 2010 wines and in some respects surpassing them, according to producers and merchants interviewed this month. Buyers who attended trade tastings in the region agreed quality is high and indicated they expect that to be reflected in increases of 10 percent or more for ’16 release prices relative to 2015s. The wine is sold forward while still maturing in barrels and will be offered to the international trade over the next few weeks. The vintage comes after a difficult period for Bordeaux, which saw prices peak in 2011 on the back of speculative buying, then slump more than 40 percent in the following five years. A run of poor harvests between 2011 and 2013 was followed by an improved crop in 2014 and a highquality vintage in 2015. Now producers are saying 2016 marks a new high point. “It has the structure of 2010 but the elegance of 2015, 2009,” according to Veronique Sanders
A tasting glass of Chateau Mouton Rothschild 2016 Bordeaux wine. Bloomberg
of Chateau Haut Bailly in Pessac-Leognan. “The tannins are very round.” The character of the vintage was shaped by highly unusual weather, which featured a very wet spring followed by an exceptionally dry summer and then cool nights and warm days in September and October allowing grapes to ripen while preserving their freshness. August temperatures were 5 degrees Celsius more than normal while the month had 30 per-
cent more sunshine than average, according to a study by Laurence Geny and Axel Marchal of the University of Bordeaux. The first 13 days of September were the hottest since 1950, followed by brief rain and then more sun which gave renewed impetus to ripening. “It’s rare to have such balance,” Philippe Dhalluin of Chateau Mouton Rothschild in Pauillac said. “It’s due to the summer. Maturity came very slowly.” At nearby estate Chateau Pi-
Chateau Pichon Longueville Comtesse de Lalande in Bordeaux. Bloomberg
chon Baron, owned by Axa Millesimes, Christian Seely said that amid the favorable vintage “tannins needed to be controlled,” while across the road at Chateau Pichon Longueville Comtesse de Lalande Nicolas Glumineau summed up the vintage as “everything in balance.” Over on the right bank 2016 was “a great combination of the terroir and the technique,” according to Marielle Cazaux at Chateau La Conseillante in Pomerol, while Jean-Valmy
Nicolas at nearby Chateau Figeac in Saint Emilion said the estate’s 2016 was “the best Figeac produced in the modern era.” Stephanie de Bouard-Rivoal of Chateau Angelus in Saint Emilion said the 2016 vintage was characterized by “a lot of freshness, precision” and that while the favorable harvest weather would have allowed the estate to produce more bottles, “we decided to be more selective.” Her cousin Thierry Grenie de
Bouard, who joined her last year in the estate’s top management, said 2016 was exceptional for its “long maceration, long extraction.” “A vintage which seemed so challenging at the beginning totally exceeded expectations,” James Snoxell, head of buying at Armit Wines in London, wrote in his vintage report. “The vintage turned out to be a remarkably successful one.” UK buyers will have to contend not only with potentially higher release prices for the wines, but also an 8 percent drop in the pound against the euro since last June’s referendum on Britain leaving the European Union, which will exacerbate any premium. Philippe Kalmbach of the Wine Source Fund said that while unchanged prices, excluding currency fluctuations, would be the “best-case scenario,” he anticipated price increases since Bordeaux producers were reaping the benefits of investment in new wine-making facilities and cellars. “With all this investment, there is a feeling they can’t make a bad wine,” he said. “The tannins feel very silky.” Bloomberg