Global shares muted as prospect of US cut fades

Global markets were low following the prospect of rate cuts by the US Federal Reserve dampened on Monday, after better than expected US job growth. (AP)
Updated 09 July 2019
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Global shares muted as prospect of US cut fades

  • American and Chinese representatives to hold fresh round of trade talks in coming weeks

LONDON: Global stocks were in a muted mood on Monday after strong US job gains tempered expectations the Federal Reserve will deliver a large rate cut, while Deutsche Bank shares fell after a major restructuring.

Sentiment was dampened by US investment bank Morgan Stanley’s decision to reduce its exposure to global equities due to misgivings about the ability of policy easing to offset weaker economic data.

In Turkey, the lira, stocks and government dollar bonds weakened after President Recep Tayyip Erdogan dismissed the central bank governor, fueling fears about monetary policy independence.

European stocks moved little, with the pan-European STOXX 600 index adding 0.04 percent.

Top movers on the STOXX 600 included TGS Nopec, up 6.7 percent on an earnings update. US futures pointed to a lower opening for Wall Street, with E-Minis for the S&P500 at -0.2 percent.

In Asia, there was a wide sell-off in stocks, with MSCI’s broadest index of Asia-Pacific shares outside Japan losing 1.4 percent and China’s blue-chip CSI300 index down 2.32 percent, its biggest daily loss since May 17.

“We are lowering our exposure to global equities to the range we consider ‘underweight’,” Morgan Stanley’s London-based strategist Andrew Sheets said in a note. The previous range was “neutral.”

Expensive valuations and pressure on earnings were among the reasons for the downgrade, Sheets said, while the bank increased its exposure to emerging markets sovereign credit and safe haven Japanese government bonds.

Since the start of the year, global equities have been bolstered by expectations central banks will keep interest rates at or near record lows to boost economic growth.

Those were tempered by a US labor report on Friday that showed nonfarm payrolls jumped 224,000 in June, beating forecasts of 160,000, a sign that the world’s largest economy still had some fire.

Given the strength shown in that data, investors now expect US Federal Reserve Chairman Jerome Powell to slow rate cuts this year.

“The re-adjustment in expectations did push the dollar higher and had a negative effect on Asia but Europe has been supported by investors saying ‘whatever the Fed does, the ECB (European Central Bank) will still cut’,” said Andrew Milligan, head of global strategy at Aberdeen Standard Investments.

Trading is expected to be subdued ahead of Powell’s testimony to the US Congress on Wednesday, which will give clues on the near-term outlook for monetary policy.

The Greek stock index rallied at the open to hit a new February 2015 high before erasing gains and slipping 1.3 percent as traders booked profits after Greece’s conservatives took power after victory in snap elections on Sunday.

Greek 10-year bond yields fell by 14 basis points in early trade to hit new all-time lows of 2.016 percent, reversing the 12 basis point yield rise on Friday.

Currencies

There was some positive news on the protracted China-US trade war, with White House Economic adviser Larry Kudlow confirming that top US and Chinese delegates will meet this week for trade talks.

“Whether the negotiators can find a solution to the difficult structural issues that remain between the two sides is another matter, and Kudlow cautioned there was ‘no timeline’ to reach an agreement,” National Australia Bank strategist Rodrigo Catril said.

In currency markets, the Turkish lira was down 2 percent against the dollar after Turkey’s Central Bank’s Murat Cetinkaya was replaced by his deputy Murat Uysal.

Erdogan sacked Cetinkaya for refusing the government’s repeated demands for rate cuts, laying bare differences between them over the timing of interest rate cuts to revive the recession-hit economy.

The dollar index stood at 97.233, down marginally on the day but near the 3-week high of 97.443 hit on Friday.

The euro, which dropped to $1.1208 on Friday, traded at $1.1225.

After hitting a six-month low to the dollar on Friday as a result of poor economic data and a rise in expectations that the Bank of England will cut interest rates, the pound edged down to $1.2530.

Geopolitics may be in focus this week following news on Sunday that Iran will boost its uranium enrichment, in breach of the 2015 nuclear deal.

“So far tensions have not had a material impact on markets, but if they escalate it could be a different story,” said Catril.

In commodity markets, Brent crude futures were down 0.09 percent to $64.18. US West Texas Intermediate was 0.12 percent down at $57.44 a barrel, and Spot gold gained 0.4 percent to $1,404.48 an ounce.


BMW picks insider Zipse as CEO to catch up with rivals

Oliver Zipse
Updated 28 min 11 sec ago
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BMW picks insider Zipse as CEO to catch up with rivals

  • German giant has lost ground to Mercedes-Benz and Tesla as tech steps up

FRANKFURT: BMW has named Oliver Zipse as its new CEO, continuing the German carmaker’s tradition of promoting production chiefs to the top job even as the auto industry expands into new areas such as technology and services.
Hailing Zipse’s “decisive” leadership style, BMW hopes the 55-year-old can help it win back its edge in electric cars and the premium market  from rival Mercedes-Benz.
But some analysts questioned whether Zipse was the right choice with new fields such as software and services like car-sharing becoming increasingly important.
“What is intriguing is the cultural bias to appoint the head of production. It works sometimes but ... being good at building cars is not a defining edge the way it was 20 years ago,” said Jefferies analyst Philippe Houchois.
Current CEO Harald Krueger, and former chiefs Norbert Reithofer, Bernd Pischetsrieder and Joachim Milberg were all former production heads.
Zipse joined BMW as a trainee in 1991 and served as head of brand and product strategies and boss of BMW’s Oxford plant in England before joining the board.
He will become chief executive on Aug. 16, taking over from Krueger who said he would not be available for a second term.
“With Oliver Zipse, a decisive strategic and analytical leader will assume the Chair of the Board of Management of BMW. He will provide fresh momentum in shaping  the future,” said Reithofer.
Zipse helped expand BMW’s efficient production network in Hungary, China and the US, in a move that delivered industry-leading profit margins.
Under Krueger, BMW was overtaken in 2016 by Mercedes-Benz as the best-selling luxury car brand.
It also had an early lead over US  rival Tesla in electric cars, but scaled back ambitions after its i3 model failed to sell large numbers.
Reithofer initially championed Krueger’s low-key consensus-seeking leadership, but pressured him to roll out electric vehicles more aggressively, forcing Krueger to skip the Paris Motor Show in 2016 to reevaluate BMW’s electric strategy.
Krueger’s reluctance to push low-margin electric vehicles led to an exodus of talented electric vehicle experts, including Christian Senger, now Volkswagen’s (VW) board member responsible for software, and Audi’s Markus Duesmann, who is seen as a future CEO of the company.
Both were poached by VW CEO Herbert Diess, a former BMW board member responsible for research who was himself passed over for BMW’s top job in 2015.
VW has since pushed a radical 80 billion euro ($90 billion) electric car mass production strategy, and a sweeping alliance with Ford.

Other skills
“A CEO needs to have an idea for how mobility will evolve in the future. This goes far beyond optimising an existing business,” said Carsten Breitfeld, chief executive of China-based ICONIQ motors, and former BMW engineer. “He needs to build teams, attract talent, and promote a culture oriented along consumer electronics and internet dynamics.”
German manufacturers have dominated the high-performance market for decades, but analysts warn shifts towards sophisticated technology and software is opening the door to new challengers.
“Tesla has a lead of three to four years in areas like software and electronics. There is a risk that the Germans can’t catch up,” UBS analyst Patrick Hummel said.
Germany’s Auto Motor und Sport car magazine, normally quick to champion German manufacturers, this week ran a cover questioning BMW’s future.
“Production expertise is important, but if you want to avoid ending up being a hardware provider for Google or Apple, you need to have the ability to move up the food chain into data and software,” a former BMW board member said.