U.K. business confidence sank to a 4 1/2-year low in the days after Britons voted to leave the European Union.
A gauge of sentiment slid to six in the wake of the referendum, from 32 in May, according to data compiled by Lloyds Banking Group Plc. While that’s the lowest since December 2011, in the midst of the euro-area’s sovereign-debt woes, it’s still above the lows seen during the global financial crisis. An index of economic optimism plunged to minus 11, the first negative reading since July 2012.
“Current sentiment levels signal a clear weakening of the near-term economic outlook, which the Bank of England has already indicated a readiness to respond to,” Lloyds senior economist Hann-Ju Ho wrote in the report. Still, “one month’s results should be interpreted with care and much will depend on how confidence levels evolve.”
‘Panic’ Brexit Withdrawals Freeze $19.4 Billion Property Funds
U.K. property funds with more than 15 billion pounds ($19.4 billion) of assets froze withdrawals as investors sought to dump real estate holdings in the aftermath of Britain’s vote to leave the European Union.
Henderson Global Investors, Columbia Threadneedle Investments and Canada Life suspended trading in at least 5.7 billion pounds of funds on Wednesday. Aberdeen Fund Managers Ltd. cut the value of a property fund by 17 percent and suspended redemptions so that investors who asked for their money back have time to reconsider.
Wednesday’s moves brings the number of U.K. firms curbing redemptions to seven since the June 23 vote.
Investors are pulling money from U.K. property funds as analysts warn that London office values could fall by as much as 20 percent within three years of the country leaving the EU. During the financial crisis of 2007 and 2008, real estate funds were similarly hit by redemptions and forced to halt withdrawals, contributing to a slump in property prices of more than 40 percent from their peak in Britain.
Australia Rating Outlook Cut to Negative From Stable by S&P
S&P Global Ratings cut the outlook on Australia’s AAA credit rating to negative from stable as it warned the prospect of fiscal-policy gridlock could thwart government attempts to rein in a budget deficit.
S&P warned the AAA could be lost if it believes “that parliament is unlikely to legislate savings or revenue measures sufficient for the general government sector budget deficit to narrow materially and to be in a balanced position by the early 2020s.”
Australia’s dollar weakened as much as 0.7 percent to 74.67 U.S. cents following the statement before rebounding to 75.17 as of 2:21 p.m. in Sydney. The 10-year yield was at 1.89 percent.
BOJ's Kuroda upbeat on economy despite Brexit fears
Bank of Japan Governor Haruhiko Kuroda said the central bank is ready to expand monetary stimulus further if needed to achieve its 2 percent inflation target, but made no mention of the Brexit vote that has spread turmoil in financial markets.
Kuroda maintained the central bank's optimistic view on the economy, signaling his confidence over Japan's recovery prospects.
"Japan's economy is expected to expand moderately as a trend," Kuroda said in a speech delivered at a quarterly meeting of the central bank's regional branch managers on Thursday.
"The BOJ will scrutinize risks to the economy and prices, and take additional easing steps if deemed necessary," he added.
Japan Needs Fiscal Stimulus to End Deflation, Abe Adviser Says
Japan needs large fiscal stimulus packages through 2018 to escape from deflation, according to an adviser to Japanese Prime Minister Shinzo Abe.
The government should add 20 trillion yen ($198 billion) in fiscal stimulus this year to achieve the 2 percent inflation target in fiscal 2017, said Satoshi Fujii. To “completely end deflation,” about 37 trillion yen in stimulus is needed, the Kyoto University professor said in an interview on Wednesday.
More than three years after Abe came to power pledging to end deflation and revive growth in Japan, inflation is elusive and the economy has oscillated between growth and contraction. Fujii’s comments indicate that after Sunday’s upper-house election, the government is willing to increase spending, even as Japan carries the world’s largest debt burden.
The stimulus package should be 20 trillion yen this fiscal year, 12 to 13 trillion yen next year and 5 to 6 trillion yen in 2018
Brexit Referendum Will Only Put Slight Damper on German Economy.
The result of the Brexit referendum will probably only put a small damper on the German economy this year and in 2017, according to calculations by the Ifo Institute. Ifo’s latest figures indicate that growth in Germany will be around 0.1 percent lower than previously forecast for 2016 and 0.1 – 0.2 percentage points lower in 2017. These effects are due to weaker exports and investments.
“This is a small effect. It will not endanger the upswing that the German economy has been experiencing for over three years now,” said Timo Wollmershäuser, Interim Director of the Ifo Center for Business Cycle Analysis and Surveys, on Wednesday. “We expect an economic downturn in Britain, a depreciation of the British pound, as well as a temporary period of higher uncertainty. That will have a small negative impact on German exports and investments, but this will be short-lived,” he noted.
Oil higher after API data said to show big drop in U.S. crude supplies
The American Petroleum Institute late Wednesday reported that crude supplies fell 6.7 million barrels for the week ended July 1, according to sources who reviewed the report. The closely watched Energy Information Administration report is due Thursday at11 a.m. Eastern time, with data delayed by a day following Monday's Independence Day holiday.
Analysts polled by S&P Global Platts forecast a 2.6 million-barrel decline in crude supplies. Following the API data, August crude CLQ6, +0.70% was at $47.91 a barrel in electronic trading, up from the $47.43 settlement on Nymex.
Reference: MarketWatch,Cesifo Group,Reuters,Bloomberg
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