Category: Capital Markets (stocks and bonds)

How the Rising Dollar Ripples Across the US Economy
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How the Rising Dollar Ripples Across the US Economy

The dollar has risen about 15 percent since its low of June 2011, allowing Americans to enjoy lower prices for imported goods, and helping keep inflation in check. It can also lead to lower commodity prices, allowing Americans to pay less for energy and food.

But it has made exports more expensive, reducing U.S. manufacturers’ competitive advantage abroad. As domestic manufacturers reduce expenses, that can lead to job losses and restrain economic growth. And it can hurt stock prices of U.S. companies that do business abroad, as sales of their products in weakening currencies fetch fewer dollars.

“Many U.S. Treasury secretaries, administration officials and financial pundits have touted a strong dollar policy, but the impacts of such a policy are a mixed bag,” said Bob Hughes, lead author of Business Conditions Monthly, an AIER report which provides an outlook for the U.S. economy, and a read on inflationary pressures. This month’s edition, which focuses on the impact of the rising dollar, suggests a slightly weaker economy than last month, but forecasts continued growth in the quarters ahead, as well as subdued inflationary pressures.

In addition to the impact on the economy and inflationary pressures, the report highlights the strong dollar’s potential impacts and risks for investors in global fixed income markets and commodities, as well as U.S. equities and global equities.

Hughes said the dollar is likely to head even higher, as this country’s economy gains strength, and U.S. interest rates begin to rise while foreign central banks ease their own monetary policies. Consequently, investors may still have time to review their portfolios and make appropriate adjustments to mitigate the risks from a stronger dollar, Hughes said. To read the full report, visit aier.org.

Deregulation
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Deregulation, Distributed Generation, and Environmental Concerns Are Expected to Shape the Smart Grid Industry in 2015 and Beyond, According to Navigant Research

With breakthroughs and innovation emerging on an almost daily basis, the smart grid technology industry is burgeoning. For the electric utilities expected to deliver reliable and efficient grid systems, however, the pace is considerably slower. Electric utilities worldwide are facing upheaval on a number of fronts, influencing industrywide trends. Click to tweet: According to a recent white paper from Navigant Research, a combination of factors that includes deregulation, the proliferation of distributed generation (DG) installations, and environmental concerns are expected to mold the smart grid industry in 2015 and beyond.

“Deregulation is occurring globally, even as distributed generation (DG) cuts into the utility’s core business of selling electricity to businesses and consumers,” says Richelle Elberg, senior research analyst with Navigant Research. “Further, the increase in DG installations, along with electric vehicles (EVs), is changing the load profile of distribution circuits, often in concentrated neighborhoods, which can mean reduced grid stability and increased need for infrastructure upgrades.”

One way utilities are adapting to this changing landscape is by maximizing investment in advanced metering infrastructure (AMI) networks for a host of new applications, from consumer engagement to analytics, and from demand response (DR) to time-of-use (TOU) pricing. As utilities leverage this last mile of connectivity, and intelligence morphs and spreads across the grid, the need for increasingly complex and interoperable IT systems, more robust communications networks, and greater collaboration between formerly siloed teams, also grows.

The full white paper is available for free download on the Navigant Research website.

Where Next for Euro Government Bonds?
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Where Next for Euro Government Bonds?


 Tom Sartain, fixed income fund manager at Schroders, comments on what investors can expect from the euro government bond markets after the expanded QE begins:

“In January, the ECB announced a bold expansion of its asset purchase programme. Now that markets have had time to digest the news, investors want to know where eurozone government bonds will go next and where the opportunities lie in today’s low yield environment.

In summary, our views are that:

• The sheer size of the expanded stimulus plan and the quasi open-ended nature of the schedule came as a surprise to the market. We believe this will prove more impactful in raising inflation expectations than markets are anticipating.

• Markets are too pessimistic on the near-term growth outlook for the eurozone. Prior to January’s announcement data were already starting to turn. The asset purchases will act as a further boost to economic progress.

• The ECB’s decisive action could shift the supply-demand balance for certain parts of the European bond market; some assets will be clear beneficiaries from the programme.

• Although the monetary policies of the eurozone and stronger economies like the US and the UK are moving apart, key aspects of bond pricing will remain closely linked. Historically, inflation risk premium (the amount of return demanded by investors for offsetting inflation risk) and term premium (the return demanded for moving further along the yield curve) are highly correlated between these markets.

There remain many unanswered questions regarding the practicalities of the expanded asset purchases. Exactly how the purchases will be undertaken is not yet fully understood; it could be via reverse auction or directly in the secondary market. The split of the bonds to be bought in terms of maturity is also not clear. Finally, there is little detail on how the ECB will avoid causing dislocations in the yield curve. Some bonds will be easier to buy than others, and market participants are likely to try to capitalise on the ECB’s buying activity. This could lead to some significant distortions.

When the small print is digested, we think 2015 should present a number of opportunities for active managers. Long dated bonds in non-core economies, inflation linked euro bonds, bonds issued by government agencies and covered bonds are all on our radar as potential major beneficiaries from the presence of a large buyer in the market.

Against a backdrop of very low or even negative yields on many eurozone bonds, Italian and Spanish yields offer a positive yield and a steep curve. This is attractive when combined with a central bank which has committed to significant asset purchases in these markets. We expect yield spreads – the differential between a bond’s yield relative to Bunds – will continue to converge between eurozone countries, but will stay wider than the levels experienced in the years leading up to the financial crisis.

In the medium term, yields are likely to move higher, but will remain lower than historical standards. European yields will stay lower than those of faster growing economies such as the US, but if the market begins to demand higher yields from US Treasuries, because the Fed Funds rate is moving higher, then investors in European assets will demand the same.

The principal systemic risk from a euro perspective comes from Greece and its possible ‘Grexit’. The market remains nervous of the situation in Greece, and should events unfold in a disorderly fashion, any expanded asset purchases will not be enough to prevent investors seeking a meaningfully higher risk premium on euro area assets.”

Eurozone's GDP Boost Should Ease Negotiations
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Eurozone’s GDP Boost Should Ease Negotiations

A number of countries helped the Eurozone to beat forecasts this quarter. German output increased by 0.7% quarter-on-quarter over Q4, powered by exports and consumer spending. While exports have long been the engine of German growth, consumer spending had been out of line with other members. Spain and Portugal have returned to expansion and posted increases of 0.7% and 0.5% respectively. Italy and France continue to dampen the currency union’s overall reading with zero and 0.1% growth respectively, while Greece has shown again the mercurial nature of its recovery by contracting 0.2% over Q4.

It may be tempting to wonder why these small changes in output matter. Athens has only a fortnight until its next IMF payment is due and mere days to agree the conditions for a further line of credit to avoid outright default. Politics seem to have taken over, and the focus has moved away from GDP to wrangling over debts and austerity. But it matters because at root this crisis is about growth. The Eurozone has seen virtually no expansion in output since the recession, and some predict a “new normal” state of low growth where an ageing population and high debts cause virtual stagnation for decades as in Japan. Under such conditions, the currency union would remain under severe strain, with impoverished electorates unable to agree on the fiscal transfers that are needed to maintain balance in a group of economies with variance in competitiveness.

The recovery in growth should aid negotiations for Monday’s crucial showdown, where the sides need to find a compromise. It is easier to be generous when the pie is expanding. Perhaps Germany’s sizeable export boost will remind Merkel what Germany gains from the euro and why it has expended so much effort already in supporting weaker members. Certainly she would be unable to sell a more lenient deal to her own voters if their own standards of living were falling, no matter how parlous the situation further South. In addition, both parties appear to be making concessions since the disappointing Eurogroup meeting of Eurozone finance ministers on Wednesday, when negotiations broke down without even finding common starting ground.

Today’s figures give grounds for cautious optimism. They show that even amid great uncertainty and the deflation that prevailed in Q4, the Eurozone achieved growth and its largest underwriter also boosted output. The low oil price has helped bolster spending and the European Central Bank may even receive some credit for its various preliminary efforts in late 2014 before pulling the quantitative easing lever. Much more is needed to help Europe out of its stagnation, especially on fiscal policy where there remains untapped resource for stimulating demand. Tentative signs of growth make the potential for compromise stronger, though Europe is still some way from a mutually acceptable solution. The next Eurogroup meeting on Monday remains decisive.

 

Economist Keith Wade Gives Outlook on US Economy
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Economist Keith Wade Gives Outlook on US Economy

“Recent robust US economic data has heightened the prospect of the Federal Reserve raising interest rates by mid-2015. The strength of the recovery in the jobs market has begun to add some inflationary pressures to the economy, which have offset the impact of lower energy prices. But while we put the probability of a rate rise in June at close to 60%, the market is pricing in just a 25% chance.”

In this 60 second video, Schroders economist Keith Wade gives his broad overview of the US economy: “The US has reached take-off velocity and is on a self-sustaining path. We are seeing jobs increase, we are seeing household incomes rise and that is supporting consumer spending, so we do believe the US is set fair for 2015.”

“If that scenario continues to play out then the odds of a rate hike in the US by mid-2015 could shorten further. So investors will keep a close eye on upcoming economic data out of the US including; retail sales figures out on Thursday and consumer confidence numbers due for release on Friday.”

UK Trade Deficit Reached Widest Last Year Since 2010
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UK Trade Deficit Reached Widest Last Year Since 2010

The wider deficit for the year as a whole was largely attributed to exports falling more significantly than imports did. The sharp drop in the price of Brent crude oil, which began in September and continued into January, helped to strengthen the trade balance to some extent as oil imports fell by more than oil exports. However, this narrowing of the trade deficit in oil was not enough to offset sharp declines in exports of other manufactured goods.

The weak performance of exports was felt with trade partners around much of the globe. In the final quarter of 2014 the value of goods sales to Eurozone members fell back by 0.5% year on year, and by 1.9% to the rest of the world. Exports to the US, one of the UK’s largest trading partners, declined year on year by 6.3%. In addition, growth in sales to China has been slowing recently, to just 0.8% year on year in the final quarter of last year.

This trend of weak overall trade performance is likely to continue this year. The Eurozone remains unlikely to see much of an acceleration in growth in 2015, particularly given the uncertainty being generated by the prospect of a Greek exit from the single currency area. In addition, economic expansion is expected to continue cooling in China over the medium term, weighing down on export prospects there.

Although Cebr’s overall forecast for the UK in 2015 is for GDP growth to remain broadly steady, largely due to domestic demand growth. Workers are expected to see their first significant increases in wages in real terms this year, as inflation drops to historic lows. While this will help to sustain economic momentum in the short term, expansion over the longer term will need to come from more sustainable sources such as exports and business investment.

BBA: “Licence to Trade” Qualifications and Tougher Codes of Conduct Will Strengthen Trust in Financial Markets
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BBA: “Licence to Trade” Qualifications and Tougher Codes of Conduct Will Strengthen Trust in Financial Markets

The BBA supports the objectives of the review and sees reform as vital to restore trust and confidence in financial markets and believes it is important for the UK to play a leading role in shaping the global agenda.

As such the BBA submission makes a number of positive proposals for policymakers to consider:

“Licence to trade” qualifications for all in financial markets. The BBA believes that everyone undertaking activity in wholesale FICC markets should be required to pass exams and become professionally qualified. This would not need to be one single qualifications for all markets but policymakers should work with the industry to identify which qualifications should be recognised as giving a “licence to trade”.

Giving “teeth” to codes of conduct. Global principles should be implemented nationally and explicitly endorsed by regulators so that they are given “teeth”. These should then be integrated into company and board mission statements, job descriptions and remuneration policies, with proof of continuing adherence for individuals being required in annual appraisals, promotion requisites or mandatory regular face-to-face training courses.

Expansion of Individual Accountability Regime. The banking industry is implementing the new Senior Managers Regime as recommended by the Parliamentary Commission on Banking Standards. We believe that all non-retail market participants should be subject to either the senior manager or certification requirements as currently being consulted on by the Financial Conduct Authority. This would encourage greater personal responsibility and accountability for across financial markets.

Commenting, BBA Chief Executive Anthony Browne said:

“Restoring trust to financial markets is hugely important to the banking industry in the UK. So we support the Bank of England and the Government in their drive to shape the global regulation of financial markets.

“We want London to once again set the gold standard for fair dealing and integrity in financial markets. That’s why we want to make sure that all traders are professionally qualified, that the many existing codes of conduct are reformed and given teeth and an extension of new rules to increase personal accountability and responsibility of senior managers.

“This is a once in a generation chance to clean up financial markets – we must seize it.”

Gilts at 1.4%- Where Do Investors Go for Income?
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Gilts at 1.4%- Where Do Investors Go for Income?

If that doesn’t sound particularly appealing, and you believe the Bank of England will hit its 2% inflation target over the next 10 years (don’t laugh), the money the government returns to you will be worth less than when you gave it to them.

If you want to get your money in the meantime, you will have to sell at the market price, which could mean even less if interest rates rise.

Laith Khalaf, Senior Analyst, Hargreaves Lansdown:

‘You don’t have to be mad to buy gilts, but it helps. Rational investors wouldn’t touch gilts at this level, but reason is pretty much out the window when central banks are sporadically firing bazookas at government bond markets.

However plenty of well-respected, rational fund managers have been caught out by calling time on the gilt market, starting with Bill Gross, who told us five years ago the UK government bond market sat on a bed of nitroglycerine. The 10 year gilt yield at the time stood at 4%, quite a tantalising prospect by today’s standards.

Despite the unflappable ability of the bond market to confound reasonable expectations, we would still advise investors to be wary of investing in government bonds. For long term investors, equities simply look a much better bet, if you can ride out the ups and downs.

Investors looking for bond exposure should consider strategic bond funds, which have the flexibility to invest across the bond spectrum and hence to dodge the worst of any carnage in the bond market, providing the fund manager is on his toes.’

Why have gilt yields fallen?

Falling inflation, lower growth expectations, and of course the ECB bond-buying programme are the most likely culprits for the fall in bond yields.

CPI inflation has fallen to just 0.5%, largely a result of lower oil prices. UK economic growth slowed to 0.5% in the final quarter of 2014. And ECB President Mario Draghi has announced a 1 trillion euro government bond buying programme.

The ECB won’t be buying UK bonds, but the QE programme has prompted a decline in the German 10 year government bond yield from 0.5% to 0.36%. This makes the UK more attractive by comparison, and yields fall as more money flows in that direction.

The 10 year yield at 1.4% does make sense if you believe the UK is set for an extended period of low inflation, or indeed deflation.

Alternatives for income-seekers

The unappealing return available from gilts probably goes some way to explaining the popularity of UK Equity Income and Property funds in recent times.

UK Equity Income was the best-selling UK sector in 2014, according to the Investment Association, with funds seeing £6.3 billion of inflows. Meanwhile property funds saw £3.8 billion of inflows, the highest figure ever for this sector.

The main alternatives to government bonds for income-seekers are as follows:

1. Cash

Cash won’t fall in value, but it won’t return very much at the moment. All savers should hold some money in cash as a buffer to fund short term spending needs. However, long term investors are likely to get short shrift from holding cash, particularly once you take inflation into account.

The pensioner bonds from NS&I look like a good option for over 65s, but they are taxable. Cash ISA returns aren’t particularly attractive, but they are tax-free. Using your ISA allowance also means that if rates rise in the future, or you become a higher rate taxpayer, that ISA wrapper really pays off by shielding you from even more tax.

You can also now transfer from a cash ISA to a stocks and shares ISA, and back again. Last year we saw a 48% increase in transfers into our stocks and shares ISA, as savers flee from low cash rates in search of better long term returns.

2. Bonds

The 10 year government bond currently yields 1.4%. The yield on the average investment grade corporate bond funds currently stands at 2.8%, on the average high yield bond fund it stands at 4.3%.

None of these look particularly attractive, given the risks involved. However, as mentioned above, that hasn’t prevented bonds from beating expectations in the recent past.

For some investors, bonds make up part of a balanced portfolio, though we would suggest they look to strategic bond funds run by seasoned managers, such as Invesco Perpetual Tactical and M&G Optimal Income. These funds have the flexibility to invest across the bond spectrum, harvesting opportunities and avoiding pitfalls where possible.

3. Property

Property has been very popular of late, as it is an alternative to gilts in terms of both income generation and diversification. Property funds are currently yielding 3-4%.

Property fund investor should be aware that the costs of investing in this asset class are high, and will erode returns over time.

Property is also an illiquid asset, which means if you hold it via an open-ended fund, you might have to wait for your money when you encash the fund, if there is a stampede for the exit. For this reason, and because of heavy inflows into the sector, some property funds are holding in excess of 10% of the fund in cash, which is likely to hamper long term returns.

Investment trust investors don’t face the same wait to encash their funds, which they can do at market price throughout each trading day, though in times of distress this price is likely to be less than the value of the portfolio of properties their fund is invested in.

4. Equities

Equities look relatively attractive on a yield basis for long term investors. The FTSE All Share yields 3.8%, with the FTSE 100 yielding 4%.

While share dividends can, and do fall, over the long term if properly managed they have the potential to grow significantly, as does your initial capital investment.

Equity income funds are a good core holding for long term investors seeking income, and those seeking total returns.

A £10,000 investment in Artemis Income at launch in 2000 would now be generating an income of £795, an effective yield on your initial investment of almost 8%.

Over the course of the last 15 years you would have received a total income of £9,180, almost your initial investment back in income alone.

And the real kicker is your fund would now be worth £21,160.

Investors who want to invest in equity income funds might consider Artemis Income, Woodford Equity Income, and Newton Global Higher income.

Investing in these funds via an ISA means your gains are free from capital gains tax, and higher rate taxpayers save 22.5% income tax on dividends.

Forget the Billion Dollar Club
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Forget the Billion Dollar Club, let’s create the Billion Pound Club, says Powa CEO Dan Wagner

As the UK shows signs of establishing its own billion dollar start up club with a wave of new investments, one company that stands out is Powa Technologies, the mobile commerce specialist founded by veteran entrepreneur Dan Wagner.
Powa Technologies was valued at £1.78bn ($2.7bn) after a series of heavyweight international investors recognised the transformational potential of its mobile commerce platform PowaTag. The company has secured more than $150m in institutional investment over the last two years, including a record-breaking $90.7m Series A round, the largest ever secured by a technology start up.

Dan Wagner, founder and CEO of Powa Technologies, said: “We should be confident in our ability as a nation to create our own world-class breed of technology leaders. Rather than following the Billion Dollar Club, we should all be focussing on the Billion Pound Club. There are many companies out there with the potential to achieve this, and we must create an environment that can nurture and sustain their growth.

He continued: “The increasing level of attention the UK technology scene has received in the last few years makes it clear the international investment community has begun to recognise our vast potential to innovate as a nation and build companies which can become international market leaders.

“I believe it is very feasible for the UK to produce a global digital champion that will secure ubiquity comparable to Microsoft or Google within the next five years. Heavyweight investors from around the world are starting to recognise the powerful potential for British companies on the global business stage.”

Powa Technologies is recognised by the Wall Street Journal’s prestigious Billion Dollar Startup Club, listing the world’s leading companies valued at over $1bn. Dan Wagner believes the investment attracted by the UK’s digital economy and the jobs created as a result plays a vital role in the country’s economic growth and movement away from recession. Job creation was a priority for Powa after the $76m investment it received in 2013.

The move even gained praise from Prime Minister David Cameron, who commented: “I am delighted that Powa is further contributing to the recovery of the economy with the creation of 250 jobs to expand their growing business. E-commerce is vital to our economic success.”

Dan Wagner added: “The UK’s own developing billion pound club is largely centred around digital innovation, especially the use of mobile technology. PowaTag itself is built on the vision of using mobile to empower consumers with a new level of freedom and flexibility in the way they shop and interact with brands in their every day life.”

PowaTag gives users the ability to engage with brands and complete transactions using an array of triggers, including scanning print material, Bluetooth beacons, audio tags and social media. Interactions such as shopping purchases or charity donations are completed with two taps of a smartphone using pre-entered payment and address information.

Commentary: Will The Greek Election Outcome Hurt UK Businesses?
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Commentary: Will The Greek Election Outcome Hurt UK Businesses?

The floodgates have opened. The victory of Greek party Syriza, in coalition with the right-wing Independent Greeks party, has opened up the avenue towards anti-austerity measures. This could be echoed further down the line within the Eurozone, as suffering southern states like Spain and Portugal gear up for elections later this year.

Markets were nervous before the results, given the party’s intentions to negotiate with the European Central Bank for a debt bailout of around €7billion, and the possibility of a Grexit (or Greek exit) from the Eurozone. The euro, already weakening in the week prior to the elections, slid to an 11-year low against the US dollar following the results.

Greece’s new anti-austerity stance could continue to have a dramatic impact on financial markets, particularly if it manages to default on its debt and exit the Eurozone. The effects of this would reverberate throughout euro markets, impacting UK businesses with trade in the Eurozone. Given that the region is currently the UK’s largest export market, UK exporters would suffer in the case of a weakening euro, whereas UK importers would save on currency costs given a stronger sterling.

UK businesses trading with countries outside of the Eurozone could also be affected through a ripple effect. A UK company trading with a US one, for instance, would be affected should the US company also be trading within the Eurozone.

Given the recent turn of events and the mounting uncertainty that looks set to continue, UK businesses trading abroad should have robust currency strategies to ensure that they mitigate risk from currency fluctuations, in order to protect their bottom line.

Mixture of Hope and Fear for Eurozone After Greek Elections
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Mixture of Hope and Fear for Eurozone After Greek Elections

The anti-bailout leftist Syriza party achieved a stronger-than-expected victory with 36.3% of the vote at yesterday’s Greek general parliamentary elections, Greece’s Interior Ministry reported this morning. This translates into 149 seats, just short of the 151 needed for a majority. Party leader, Alexis Tsipras, met anti-bailout right-wing party Independent Greeks (ANEL) this morning where they agreed to form a coalition government.

A core premise of the two parties is that the bailout programme negotiated between the troika and the previous ruling coalition has failed to address core structural issues such as tax evasion and social justice and has made short-term performance -especially in employment and earnings – worse. In response, they advocate a departure from the mantra of austerity, which they propose to support through fiscal stimulus made possible through debt reduction.

In theory this is what many economists – including Cebr – are arguing for and even the IMF itself has admitted to too much austerity as a mistake on their part. In practice, the fear is that the Syriza is unprepared for the storm awaiting it. While there seems to be consensus between Syriza and Eurozone officials that Grexit should be avoided, there are important differences between the economic programmes of Syriza and the Troika. The last review of the Troika is still pending and the Eurogroup has extended the deadline to end-February. After that, the funding of Greek banks becomes a challenge given that the ECB has indicated that it could no longer accept Greek government bonds as collateral if there is no agreement.

The IMF programme runs until Q1 2016. Greece’s new government therefore will either have to finish the review and move on to the Enhanced Conditions Credit Line (ECCL) discussions as suggested in the last Eurogroup, or make a radical move and open up new negotiations. The second scenario is more likely in our view. The fact that Syriza has been able to find Coalition partners so quickly reduces the period of political uncertainty post-election that we had identified in an earlier note as a clear risk. It also maximises the time available for negotiations. The talks are expected to be structured around three key themes: The first is debt relief. The immediate reactions from Europe’s creditor countries – most notably Germany – have sent strong signals against the possibility for outright haircuts. Given this, Cebr thinks it more likely that a compromise on debt relief – if at all achieved – will take the form of extending maturities and lowering costs. The second theme relates to structural reforms: Syriza’s pre-election campaign involved promises to reverse some of these measures, but the Troika sees such reforms as a crucial precondition for growth. Finally, the question of easing austerity will also be on the table: our base case scenario is that the primary surplus targets will be eased somewhat from the current target which is set at 4.5% of GDP until 2022.

The outcome of these talks will be crucial for Greece’s future and the future of the Eurozone. There are many who continue to believe that a Syriza-led government will make extremist demands to Greece’s creditors to the extent that these are not met and that Greece has to leave the Euro. We disagree. We continue to believe that there is plenty of room to reach an agreement and that the scenario of a Greek exit from the Eurozone carries a low probability. There are a number of arguments in support of this view. First and foremost, Syriza ran on a campaign that promised Greeks to stay in the euro and does not have the democratic mandate to force negotiations to an extreme. A recent opinion poll indicated that 76% of Greeks want to stay in the euro “at all costs” and Syriza is well aware of this. In fact, the party has moved far from its earlier radical positions and if history is a good guide we expect it to become even more pragmatist once it assumes power. What is more, we think that Greece’s primary surplus is not as strong a bargaining chip for Syriza so as to back up tough talks with the troika.

The argument runs that with a primary surplus (a positive difference between revenues and spending once the cost of servicing debt is excluded), Greece can threaten its creditors to default on debt since through enjoying higher tax revenues than are needed for its spending an economy does not need to borrow more. This is a fantasy. If cut from the Troika, the bank runs and elevated uncertainty that will result will make the primary surplus disappear through a contraction in credit and output. The creditors from their side are also in a weak bargaining position and will be working towards a compromise. While in the period between 2011 and now significant reforms have taken place in the Eurozone to lower contagion in the event of a Grexit, the risks are still very high. Crucially, Greece’s exit from the euro would be a game-changing event for the character of the currency bloc, transforming it from what was conceived to be a permanent monetary union into one where exit is a possibility. Even if Greece exits therefore, this would have serious repercussions on what happens to the rest of the periphery once they start to run into similar troubles.

In summary, whilst we acknowledge that Syriza’s victory creates significant risks for Greece and the Eurozone as a whole, our central scenario is that the two sides (Greek government and the Troika) are more likely than not to reach a compromise. Ultimately, this will be a good thing for both Greece and the rest of the periphery. As Cebr has repeatedly argued, monetary expansion is insufficient to cure the problems of weak demand that the Eurozone currently suffers from. Setting the fiscal motors to work in the same direction is imperative. The new Greek government will have to convince its creditors that it can walk the delicate tight-rope of relaxing austerity without back-pedalling on structural reforms.

Japan to Host World Economic Forum Special Meeting in 2016
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Japan to Host World Economic Forum Special Meeting in 2016

World Economic Forum Founder and Executive Chairman Klaus Schwab and Japanese Minister of Education, Culture, Sports, Science and Technology Hakubun Shimomura, met today in Davos on the sidelines of the World Economic Forum Annual Meeting and exchanged a letter of intent.

The meeting will be hosted in Japan on 19-22 October 2016. It will bring together 2,000 leaders and future leaders from the arts, culture, business, government, academia and civil society as well as representatives of the Forum’s Global Shapers and Young Global Leaders communities. The aim is to explore visions of these next-generation leaders for a more united, inclusive and equitable world. They will develop action plans that will achieve these goals in their lifetimes. Hosted by the Japanese government in October 2016, the event will kick-off the preparations for the Tokyo 2020 Cultural Olympiad.

“We would like to establish an effective organization of the Special Meeting in Japan and will be working with the World Economic Forum towards that goal” Shimomura said.

“Just as the Olympic spirit unites people across nations, we’re hoping that this event can help leaders come together to build a more peaceful society based on shared values,” said David Aikman, Managing Director and Head of the New Champion Communities of the World Economic Forum.

To watch the announcement with Minister Shimomura you can go here.

UK faces falling into deflation
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UK faces falling into deflation

He said: “We will expect it to fall further, and inflation to continue to drift down in the coming months.”

Some believe that this is very good news for UK consumers and the UK economy. Two thirds of the 1.5 percentage point fall in inflation since December 2013 is explained by energy and food prices. Most of the remaining third comes from cheaper imported goods reflecting sterling’s appreciation until last summer. This may again stimulate the consumer led demand which is driving GDP and not exports.

For savers, this may delay the first rate hike. We continue to expect a first rate rise in the fourth quarter but, with headline inflation low and some inflation expectations measures having drifted lower too, risks are growing for a later first rate rise.

Personal debt in the UK is now at its highest level ever. Total personal debt in the UK currently stands at £1.46 trillion (excluding mortgages). The reliance of the UK recovery on domestic demand is worrying. However George Osborne, the Chancellor of the Exchequer, said that the data were “welcome news” with “inflation at its lowest level in modern times”. His appraisal, one might think, is somewhat distorted by the coming election.

For savers, this may delay the first rate hike. We continue to expect a first rate rise in the fourth quarter but, with headline inflation low and some inflation expectations measures having drifted lower too, risks are growing for a later first rate rise.

Given the size of the national debt, there was some speculation that we could inflate it away. To quote an earlier blog on the subject: “The chances of inflating away the debt would be less than zero, obviously. Even with inflation running at just 1.2 per cent, clearly the chances of the debt disappearing in an inflation bubble are modest.

IHG® Trends Report Challenges Brands to Build 'Trust Capital'
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IHG® Trends Report Challenges Brands to Build ‘Trust Capital’


InterContinental® Hotels Group (IHG) today launched its 2015 Trends Report, Trust Capital: The new business imperative in the Kinship Economy, which identifies the growing importance for companies to build both brand and organisational trust. IHG is publishing its report during the World Economic Forum (WEF), in Davos, which highlights the erosion of trust in public and private sector institutions as one of its key trends.

Many companies focus on the 3Cs of organisational wealth: Financial Capital, Intellectual Capital and Human Capital. Today, corporations must add a fourth ‘C’: generating, gathering and growing Trust Capital which represents the confidence consumers have in the credibility, integrity, leadership and responsibility of an organisation and its brands.
IHG’s 2015 Trends Report focuses on how organisations can build Trust Capital, unveiling a blueprint that organisations can follow to build trust with different demographics and across different geographies.

This insight is based on a series of related studies spanning a three-year period and involving nearly 40,000 interviews with international travellers worldwide. It is the third in a series of reports focusing on consumer insights impacting the hospitality industry and business in general. In 2013, IHG published ‘The New Kinship Economy’, which highlighted a transition from brand experiences to brand relationships in the hospitality sector. The 2014 report, ‘Creating Moments of Trust – the key to building successful brand relationships in the Kinship Economy’ built on this work and suggested that to win guest loyalty in the future, hotels need to deliver a global, local and personalised experience.

Richard Solomons, Chief Executive Officer, IHG, said: “As we look around us, there are so many shifts taking place. In a digital, 24/7 world, where personalisation is increasing and consumers have a new definition of value, the trust that people have in both brands and the organisation behind them is more important than ever.

“Our research has shown that building ‘Trust Capital’ plays a critical role in delivering sustainable, high quality revenue growth. To build trust, organisations must ensure they adopt a trust agenda, focus on personalisation whilst being aware of the boundaries and develop a deep understanding of how guest needs are changing by demographic and by geography.

“For IHG, maintaining our focus in these areas will help us to continue to build genuine guest loyalty and rewarding relationships between our guests and our brands, now and into the future.”

Eurozone's Trade Balance Improves but Overall Situation Remains Alarmingly Bleak
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Eurozone’s Trade Balance Improves but Overall Situation Remains Alarmingly Bleak

This is marginally down from the previous month’s surplus of EUR 23.6 billion but up from the 16.3 billion surplus achieved in November 2013.The year-on-year improvement of the trade balance seen in 2014 was partly driven by increasing exports to China, which were up by 11% over the year to October 2014 compared to the same period a year ago. A lower value of imports due to a fall in oil prices also helped widen the surplus, offsetting the effect of a reduction in exports to Russia. The UK remained the Eurozone’s biggest trading partner, closely followed by the US and after that China. Germany continued to be the Eurozone member with the biggest trade surplus (€183.6 billion in the period of January to October 2014), while the UK has the highest trade deficit in the entire European Union running at €114.5 billion over the same period. Greece, Spain, and France on the other hand continued to post trade deficits.

While it is welcome news that exports are strengthening and that the value of imports is falling, it is hardly a time to cheer given the Eurozone’s overall condition. The currency bloc is struggling to grow (yesterday’s data showed that industrial production was broadly stagnant in November) and has slipped into deflation according to the latest data for November 2014. Unlike the UK, where weaker price growth is welcome for consumers as it is chiefly driven by falls in the prices of essentials such as food and energy, deflation in the Eurozone is much more of a worry. On top of the similar positive forces at work in the UK, deflation in the Eurozone also reflects underlying weak demand, the product of many years of an austerity remedy to treat economic crisis in the periphery and reduce debt. As if all this was not enough, political uncertainty is at record levels given the close race for Greece’s upcoming elections and the resignation of Italy’s President Giorgio Napolitano.

The currency bloc thus finds itself at a critical juncture. On the one hand, the evidence against the policies of austerity that have been implemented in the periphery in the aftermath of the crisis has been overwhelming. Unemployment in Greece for example has doubled from an average of 13% in 2010 to 26% in October 2014 and the size of the economy has been reduced by a quarter. Debt’s share of GDP is now even higher than at the beginning of the crisis. Given all this a continuation of the current austerity course rather resembles the choice of prolonging the pain, similar to and potentially worse than Japan’s “lost decade”. On the other hand, a breakup of the Union starting with a Grexit would also be catastrophic and Cebr judges that the risks to the rest of the Eurozone will be much higher than many politicians and the media consensus dare to admit.

With this in mind, all eyes are now on the ECB to do whatever it takes and create a third way out of this dismal dilemma. Yesterday’s preliminary decision by the European Court of Justice (ECJ) sets the scene for Quantitative Easing as it removes weight from Germany’s opposition on legal grounds. The key question is whether negotiations between Greece and its creditors will be concluded in time for the country to be included in the ECB’s purchases, if and when these happen.

Low Inflation a Sign of Fragility of UK Economy
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Low Inflation a Sign of Fragility of UK Economy

Commenting on the latest inflation figures published today (Tuesday), which show Consumer Price Index (CPI) inflation falling sharply to 0.5 per cent – significantly below the threshold of one per cent that triggers an open letter from the Governor of the Bank of England to the Chancellor – TUC General Secretary Frances O’Grady said:

“0.5 per cent inflation shows how fragile the economy is, not just in the UK but also globally.

“While low inflation means we are finally seeing real wages start to rise, it will be many years before they are restored even to their pre-crisis levels. Seven years of falling real wages have undermined incomes and spending power; and the threat of slipping into deflation is very real. It’s a very dangerous time for the Chancellor to be proposing a new round of austerity, which could plunge the economy back into recession.

“We need a strong and sustainable wages recovery, built not just on falling inflation, but on higher pay settlements and more decent, full-time jobs.”

Bullish RE Investors Believe London Will Dominate European Markets Until 2020
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Bullish RE Investors Believe London Will Dominate European Markets Until 2020

The UK real estate industry remains bullish about the London property market, believing it will dominate European markets for the next five years, according to new research by KPMG.

A survey of 70 real estate experts by the firm found that 89% thought London would retain its dominance of the European markets until 2020.*

“The stuttering recovery in other markets is funnelling capital into London at the moment, which is driving this bullish sentiment,” said Richard White, UK head of real estate at KPMG. “However, while the market is undoubtedly soaring, we will need to increasingly compete for this investment as economies in Europe strengthen.”

The research also revealed that the real estate industry is split over the impact Capital Gains Tax (CGT) changes might have on the market, with 40% believing the introduction of CGT for foreign investors would impact pricing in the UK’s prime housing market, while 47% argued that it would not affect prices.

“Global factors such as the performance of the rouble are dictating investment flows and these are having a greater influence on the market than our own domestic CGT changes,” said White. “In these conditions it is therefore hard to call what the long term impact will be, while these wider economic forces continue to push capital into London.”

Those surveyed said the European referendum was of greater concern to investors than UK politics. 66% said that Britain leaving the EU would have a negative impact on inbound cross-border investment, but only 31% thought that political uncertainty in the run up to the general election would dampen investment.

“The spill over effect of the UK leaving the EU is unlikely to be limited to London and the UK’s real estate markets, but regardless of the long term impact there is likely to be a pause in deal activity as investors survey the new landscape,” said Richard White. “This is an understandable worry and as such currently outranks the general election on investors’ lists of concerns.”

While demand is expected to remain high, 60% noted concern about the availability of stock during 2015. Indeed this was seen as a greater barrier to UK investment than either available returns or political uncertainty.

Offices remained the most sort after asset: 54% of those surveyed said they thought investors in the UK would mainly invest in this asset class over the next 12 months. Student accommodation and the private rented sector also remained popular, with 17% identifying the category as a potential investment in the UK in 2015.

“The UK prime market still struggles from a mismatch of demand versus supply,” said White. “Competition for assets remains fierce and we are seeing an increase in investors buying for the long term, which is likely to have a dampening effect on supply. There is no immediate solution on the horizon, because there is little development in the pipeline. This is pushing investors up the risk curve to access the opportunities that offer the returns they need.”

US Interest Rates to Remain on Hold Despite Strong Job Creation in 2014
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US Interest Rates to Remain on Hold Despite Strong Job Creation in 2014

Data released today by the Bureau of Labor Statistics showed that the US economy created 252,000 jobs in December, down from 353,000 in November. The figure is roughly in line with consensus expectations. The data also show the unemployment rate stood at 5.6% in December, compared to 5.8% in November. While December’s job creation figure is substantially below that of the month prior, US’ employment gains for the year as a whole remain strong. On average, 246,000 new jobs were created in every month of 2014, compared to a monthly average of 194,000 in 2013.

Employment increases in professional and business services, construction, health care, and manufacturing all contributed to the headline figure. Manufacturing has enjoyed especially strong job creation over the year as a whole. The sector added an average of 16,000 jobs per month in 2014, compared to 7,000 jobs per month in 2013.

As the Federal Reserve continues to stress its commitment to data-dependent interest rate decisions, many will wonder if strong employment growth could lead to sooner-than-expected rate rises. However, other economic indicators and the Fed Chair Janet Yellen’s recent remarks suggest not. Projections released by the Fed in mid-December show that inflation expectations have been driven down by falling oil prices and inflation is not expected to return to its target level of 2% until 2018. Yellen has also recently remarked that the Open Market Committee will be “patient” with monetary policy tightening and that she would like to see the unemployment rate drop below its long-run natural rate (estimated at around 5.2%), thereby placing upward pressure on wages.

Given the substantial drops in US median income following the financial crisis and lingering concerns that the benefits of the recovery are still not reaching many Americans, boosting wage growth is seen as a priority for the country. Hence, considering the risks associated with premature monetary tightening and the benign inflationary outlook Cebr continues to expect a US rate rise in late 2015.

Keeping in mind the loose monetary policy, strong job creation, and the likely GDP-boosting impact of falling oil prices, the US is set for a year of robust growth. Cebr expects the US economy to have grown by 2.5% over 2014 and to expand by 3.1% in 2015.

Pressure on ECB Mounts as Eurozone Slips Into Deflation
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Pressure on ECB Mounts as Eurozone Slips Into Deflation

Title Here

The Eurozone has slipped into deflation for the first time since October 2009 as the annual change in the Consumer Price Index fell below zero to -0.2% in December, Eurostat reported this morning. The unemployment rate across the currency area was reported to have remained steady at 11.5% November.

Beneath the headlines, today’s data continue to mask the mixed realities faced by the currency union’s members, especially those to the south of the Frankfurt-based European Central Bank (ECB) who is responsible for maintaining price stability across the bloc. Greece and Spain have already been in deflation for months now (in the case of Greece for almost two years) and have been suffering from unemployment rates more than twice as high as the Eurozone average since mid-2011. In Germany, by contrast, unemployment has been on a downward trend and is now at a modest 6.5%, while annual inflation is still positive at 0.2%.

This picture may seem puzzling to the eyes of the German taxpayers, who as the largest creditor to the European institutions are becoming increasingly fatigued by the Greek bailout saga. With so many funds sent to Greece and managed under the direction of the combined economic expertise of the troika lenders (ECB, EU, and IMF), why are economic indicators in Greece still doing so badly five years on? Recent research by the Athens-based economic analysts Macropolis shows that out of the total 226.7 billion euros that have been supplied to Greece since May 2010 by the troika, only 11% were used to sustain the needs of the Greek state such as maintaining the provision of basic public goods and services. More than half of the funds have gone back to the creditors in the form of repaying the debt and the interest associated with it , the think-tank reports. This strategy of austerity and refusal to reprofile Greece’s debt at the start of the crisis has been pointed at by the left-wing party of Syriza – who are leading the polls as the most likely winner of Greece’s next elections on 25 January – as the root of Greece’s failure to see recovery.

As recovery remains elusive not only in Greece, but in many other debt-ridden periphery economies and even the currency bloc as a whole, the key question now is what kind of fiscal and monetary policies will be designed in response. Due to their dire economic situation most periphery countries have little fiscal room to boost their economies through spending, and Germany has pledged to deliver a balanced budget this year. The ECB retains a potential silver bullet in the form of quantitative easing still up its sleeve and ready to be launched. The central bank has a central target for consumer price inflation of 2.0%. In this light, today’s news undoubtedly raises the pressure on the ECB to act. On the other hand, it is worth keeping in mind that the decline in prices was chiefly driven by a 6.3% year-on-year fall in energy prices. This is a “good type” of deflation as it directly translates into a boost for consumers’ pockets. Given that the ECB has for so long resisted QE even while some countries were in “bad” deflation, there may be little hope in expecting action now that deflation has spread to the rest of the bloc due to factors beyond its control. Overall, Cebr would welcome a move to QE but maintains its view that it would be insufficient to kick-start the recovery. A softer take on austerity and the setting of both fiscal and monetary policies in expansionary mode are imperative to avoid another crisis.

Danae Kyriakopoulou
Economist

Senior Bond Strategist comments on impact of negative inflation figures published by Eurostat
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Senior Bond Strategist comments on impact of negative inflation figures published by Eurostat


Commenting on the impact of negative inflation figures published by Eurostat, Dawn Kendall, Senior Bond Strategist at Investec Wealth & Investment said:

“The negative print on Eurozone inflation was widely expected by the market and more importantly flagged by Mario Draghi before Christmas and was in line with market expectations. However, the more pressing question now is; what’s next?

“Since Christmas, we have seen a marked deterioration in the Euro versus other trading blocs and this will put further pressure on inflation data going forward. In large part, it will depend on the amount of pain the consumer can take from retailers passing on the currency impact of higher import costs.

“In addition, oil has fallen 30% since the beginning of December which is a short term dampener in inflation before the consumer boost can start to be realised. These factors are working against the European Central Bank’s (ECB’s) desire to kick start the economy by talking of and preparing for Quantitative Easing (QE). When and if QE starts, these opposing forces will impact the future direction of inflation. For the short term, deflation is the biggest fear. The ECB meets on 22nd January and the Greek election is on 25th January – Draghi must act if he wants to avoid deepening deflation fears in the short term.”

European Leader in Big Data Media Analytics Nice People At Work (NPAW) enters US Market
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European Leader in Big Data Media Analytics Nice People At Work (NPAW) enters US Market


Nice People At Work (NPAW) announces that it is now expanding its presence in the US market. The European company has built a team of professionals to operate in the United States and is going to exhibit at NAB (National Associations of Broadcasters®) Las Vegas, NV, in April 2015.

NPAW works with multiple partners and provides direct sales support to its customers. It is an innovator in ultimate client-side real-time video and audio analytics monitoring and reporting, smart alerting, audio/radio specific analytics, real-time video optimization and CDN load balancing.

The company’s YOUBORA Analytics product, is the most advanced client side analysis, monitoring and decision making tool used to optimize video OTT content in real-time. YOUBORA helps its media content publishing and video service operator customers to grow their audiences by improving QoE and maximizing end user engagement.

CEO of NPAW Ferran Gutiérrez is confident about their entrance to the US market: “We believe this is a perfect time to expand to the America’s market with YOUBORA, our proven and deployed Smart Analytics Platform with advanced real-time Big Data processing that enables media service providers to deliver TV-quality viewing experience on the Internet. The wide range of “ready to use” client plug-ins we have already developed make YOUBORA implementation a really easy task, revealing the full potential of the service for our customers in a matter of minutes.”

Founded in 2008, NPAW is leader in advanced Big Data media analytics and real-time viewer QoE monitoring, Multi CDN Delivery, Managed Video Network deployment and real-time Analytics/Monitoring. With more than 50 customers in Europe and LATAM, NPAW creates, produces and manages advanced tools and products for premium video delivery and monitoring. The company supplies its technology to media publishing groups, broadcasters, Telcos and other OTT video service providers seeking excellence in video QoE. Youbora is available with ready to use client plug-ins for almost every available player technology (Flash, JavaScript, HTML5, Silverlight, native iOS and Android) as well as specific plug-ins for Hardware vendors (Samsung, LG, Phillips, Panasonic, Sony) and also for the leading Online Video Platforms.

US Marches on Following Strong Jobs Report
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US Marches on Following Strong Jobs Report

“Today’s US jobs report was unquestionably strong and significantly exceeded expectations. The gain of 321k jobs was higher than the official survey estimate of 230k, as well as the more bullish unofficial ‘whisper’ number on the street of around 250k, and was the highest single month job gain total since January 2012. Moreover, upward revisions of 44k confirm the strength of the recent data.

Sub-components of the report support the initial strong conclusion, and stand in contrast to many prior reports where headline and detailed information were in conflict. Private (non-government) job gains were 314k and were well ahead of the 225k expected, and – like the headline number – upward revisions were a solid 28k. Manufacturing jobs rose a very impressive 44k. Even more important, average hourly wages rose 0.4% on the month, holding a y/y rate of 2.1%, while average week hours worked – another sign of labour demand – were at a cycle high of 34.6. Both point to strong underlying labour demand and falling labour capacity.

The participation rate was unchanged at 62.8% – near the cycle low – but this was due to a healthy increase in the labour force of 119k – which kept the unemployment rate at 5.8%. We agree with the Fed’s assessment that most of the participation decline since the financial crisis is structural (ie, demographic related) and is not likely to rise sharply until wage gains become more entrenched, if at all.

There is a possibility the data is inflated by seasonal hiring over and above seasonal adjustments, supported by the very large declines in energy prices which are expected to accrue directly to consumer spending. However, the scale of the gains is large enough and widespread enough (i.e. in manufacturing) to suggest there is a more permanent shift upward in hiring.

The data clearly support a more hawkish Federal Reserve (Fed) at its December 17 meeting, and support a shift away from its super-accommodative zero-interest rate policy. Indeed, the Fed has increasingly relied on softer measures of underemployment to support holding rates at historical low levels. While the underemployment statistic today dropped 0.1% to 11.4%, it remains elevated by historic comparison and will be no doubt referred to by the more dovish Fed members. However, the other data show no signs of being inflated by temporary factors. The Fed will no doubt continue to refer to weakness outside the US and the still-low inflation rate, but the domestic employment situation continues to look more and more healthy each month.

In this respect the market’s reaction to the data makes sense: higher short-term rates – the 5 yr Treasury yield is initially up 10bps, factoring in a higher risk of sequentially higher Fed policy; while the 30yr yield is up just 4 bps initially as there are not yet signs that falling labour slack is materially pushing up labour costs or inflation expectations. Risk premiums are also initially slightly firmer, supported by the better growth data.

All in all, it is a very good report that exceeded expectations and shows no sign of distorting temporary factors nor underlying inconsistency. The data confirms our view of steadily improving US economic performance that is largely insulated from weakness elsewhere.”

Coca-Cola Operations Combine in Africa
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Coca-Cola Operations Combine in Africa

The Coca-Cola Company (NYSE:KO), SABMiller plc (LSE:SAB) (JSE:SABJ) and Gutsche Family Investments (GFI, majority shareholders in Coca-Cola Sabco) have agreed to combine the bottling operations of their non-alcoholic ready-to-drink beverages businesses in Southern and East Africa. The new bottler, Coca-Cola Beverages Africa, will serve 12 high-growth countries accounting for approximately 40 per cent of all Coca-Cola beverage volumes in Africa.

Africa offers significant growth potential in beverages, underpinned by rising personal disposable income, a fast-growing population and increasing per capita consumption. With more than 30 bottling plants and over 14,000 employees, Coca-Cola Beverages Africa will be the largest Coca-Cola bottler on the continent, with the scale, complementary capabilities and resources to capture and accelerate top-line growth. This will also allow the new African bottler to develop best operating practices and invest in production, sales and distribution, and marketing to benefit from growing demand and drive profitability.

With a shared vision, extensive experience of operating in African markets, and long-term commitment to the continent, Coca-Cola Beverages Africa will be strongly positioned to offer consumers greater choice, broader availability and better value. The new bottler will continue the shareholders’ strong commitment to the economic and social development of the communities it serves, which includes providing access to clean water, supporting women’s economic empowerment and promoting wellbeing.

On full completion of the proposed merger, shareholdings in Coca-Cola Beverages Africa will be SABMiller: 57.0%, Gutsche Family Investments: 31.7% and The Coca-Cola Company: 11.3%.

“A combined Coca-Cola bottling operation is further evidence of our commitment to Africa, and our firm belief in the tremendous growth prospects that the continent offers,” said Muhtar Kent, Chairman and CEO of The Coca-Cola Company. “As one of the top 10 largest Coca-Cola bottling partners worldwide, Coca-Cola Beverages Africa can leverage the scale, resources, capability and efficiency needed to accelerate Coca-Cola growth and contribute to the economic and social prosperity of African communities.”

“Soft drinks are an important element of our growth strategy. This transaction increases our exposure to the total beverage market in Africa. The opportunity is significant, with favourable demographics and economic development pointing to excellent growth prospects,” said Alan Clark, SABMiller Chief Executive. “This also signifies a strengthening of our strategic relationship with The Coca-Cola Company.”

Phil Gutsche, Chairman of Gutsche Family Investments (GFI), said, “Our family sees this merger as an important and logical step to enable Coca-Cola Beverages Africa to optimise the opportunities for development in the rapidly-evolving Africa beverage market. We are very excited about the opportunity and are totally committed to ensuring that Coca-Cola Sabco’s distinctive culture is successfully integrated with that of our new partners in order to create an even more successful business in the future.”

World Economy to Grow by 3.3% in 2014 - Report
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World Economy to Grow by 3.3% in 2014 – Report

The broad strengthening of growth that was generally expected to occur in the advanced economies in 2014 has not materialised. Indeed, data in recent months have shown a deterioration of growth performance in the Euro Area, and also in some key emerging market economies.

The failure of the Euro Area to achieve sustained growth or inflation close to target has become an issue of particular concern. It led to additional monetary stimulus by the European Central Bank in early September, including further cuts of 10 basis points in its already low benchmark interest rates and a programme of private sector asset purchases. Meanwhile, the appropriate stance of fiscal policies in the Area has become a subject of debate.

Even in the United States, although the expansion seems to have strengthened somewhat and unemployment has declined more than expected, the recovery has remained below par, and it is still unclear when the Federal Reserve will start raising short-term interest rates after its asset purchases under the QE3 programme ended in October.

Among the emerging market economies, Brazil fell into recession in the first half of the year. Russia’s economic difficulties – including weak growth and rising inflation – have been exacerbated by the international sanctions imposed first in March, and subsequently intensified, in response to its intervention in Ukraine, as well as by the decline in global oil prices. In China, there have been further signs of slowing growth.

Concerns about weak growth and low inflation seem to underlie a recent increase in volatility in financial markets, including widespread declines in bond yields and equity prices.

Our forecast of a gradually strengthening global recovery is subject to a number of downside risks, including a more abrupt slowdown in China and a number of geopolitical risks. In the US, monetary policy face risks on two sides: both of the raising rates too late to prevent over-heating so that inflation would rise above the target, and of raising them too late so the Fed should err on the side of patience. Whenever rates rise, the scope for further financial market turbulence is clear. Meanwhile, the problems of the Euro Area continue to worsen, with excessively low inflation exacerbating the problems of adjustment. The continuing lack of aggregate demand is apparent, and the risk of deflation and the un-anchoring of inflation expectations cannot be dismissed. We strongly support President Draghi’s view that the “risks of ‘doing too little’… outweigh those of ‘doing too much’”, both on unconventional monetary policy and fiscal policy.

PwC and Google Announce Joint Business Relationship
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PwC and Google Announce Joint Business Relationship

PwC and Google Inc. have announced the launch of a joint business relationship to bring new and innovative services to companies around the world. The rapid pace of innovation in technology has fundamentally changed how and where work gets done, driving organisations to transform their businesses for the future. Together, PwC and Google can help that transformation happen.

From Google, companies get unprecedented innovation, technology platforms and Internet scale; while PwC brings deep industry experience, a broad range of business services and cutting-edge client insights, from strategy through execution. Together, PwC and Google will help companies collaborate more effectively, better use technology and information, and adapt to the disruptive forces shaping the world.

“For our clients, acquiring the knowledge most important to their operations, securing that information and using it optimally are critical – now more than ever before,” said Mike Burwell, PwC’s Vice Chairman – Transformation. “PwC is teaming with Google to offer our joint knowledge and capabilities to clients – giving them one place to go, maximising experience and assets from both organisations.”

Together, PwC and Google will help clients by collaborating on existing solutions and developing new offerings in three areas:

1. Help companies succeed by leveraging PwC’s business insights along with Google Apps, Google’s suite of cloud-enabled collaboration and productivity tools. In doing so, we will empower companies to be more productive, serve customers more efficiently and deliver a more connected employee experience.

2. Use the combined power of PwC’s analytical acumen and Google Cloud Platform to help businesses make the most of technology and information and be better equipped to compete, creating new services to reinvent and optimise operations, connect with consumers and provide an enhanced customer experience.

3. With the right tools and insight now driving decisions, PwC and Google will guide companies seeking to break new ground in their businesses — not only to compete with new entrants and adapt to disruptive market forces — but also to lead the innovation themselves.

“Ultimately, our collaboration is about helping clients to embrace their journey to the cloud, and transform their organisations to thrive and maintain relevance in a rapidly changing world.” said Tom Archer, PwC’s Google Strategic Alliance Leader.

“Millions of companies, large and small, look to Google to help them launch, build and transform their businesses,” said Amit Singh, President, Google for Work. “We’re delighted to enter into a relationship with PwC — a leading advisor for businesses around the world — to bring the best of Google to work and help companies innovate. It’s great to see PwC lead by example, accelerating their own journey to the cloud that will lead to enhanced collaboration, greater speed and ultimately, transform their business for the digital era.”

Eurozone Inflation Falls Further
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Eurozone Inflation Falls Further

Eurostat, the European statistical agency, reported today that Eurozone’s annual consumer price inflation fell to 0.3% in September, down from 0.4% in August. This is in line with the flash estimate released at the end of September and marks the lowest recorded rate since October 2009. The strongest downward impact on Eurozone’s annual inflation came from fuels for transport, telecommunications, and gas, all of which saw a fall in prices.

Today’s figure comes as the latest blow to a hurting Eurozone. As even the area’s strongest performers such as Germany witness a slowing recovery or even fall back into recession, concerns regarding the currency area’s economic outlook intensify. Perhaps even more concerning than the low consumer price index (CPI) is the continued reluctance of the European Central Bank (ECB) to follow in the steps of the US and the UK and introduce full-scale quantitative easing (QE). Pressures on the ECB created by the threat of deflation have been counteracted by German opposition to an asset purchasing scheme. Even now that its own economic recovery has been stifled by weak production output and diminishing exports, there are no clear indicators to suggest that Germany will take steps to permit a proper QE programme.

Considering the disappointing Eurozone inflation figure and this month’s developments more generally, the IMF’s recent description of the global economic recovery as ‘weak and uneven’ rings true. Setbacks in the Eurozone couple with tensions over Russia and the Middle East, as well as lower spending in Japan and more uncertain growth in China. The fragility of the economic recovery is evident even in the US and the UK, which have generally been showing more positive indicators than the Eurozone. US retail sales fell in September, as did producer prices. This week’s sharp drop in global shares reflects the extent of market doubt over the global economic outlook, as even countries further along the recovery path show mixed signs.

After today’s data release, all eyes are on Mario Draghi and the ECB as the calls for US and UK-style QE become increasingly valid. However, it remains to be seen if Germany’s stance changes in light of its own and global economic concerns.

UK Government Kicks Off First RMB Bond Deal
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UK Government Kicks Off First RMB Bond Deal

The UK government has today (Thursday 9 October) announced it has begun the process of issuing the world’s first non-Chinese sovereign bond in the Chinese currency, the renminbi (RMB).

Three major banks have been appointed by the government following a fair and rigorous process to help deliver the planned sale of Britain’s RMB bond.

This represents a decisive step towards issuing the first RMB denominated bond by a western country, and follows the Chancellor’s announcement at the recent annual economic summit between the UK and China in London.

The three banks that will assist the government in delivering the RMB bond deal are Bank of China, HSBC and Standard Chartered.

The proceeds of the bond will be used to finance the nation’s reserves. Currently, Britain only holds reserves in US dollars, euros, yen and Canadian dollars, so a British RMB sovereign bond signals the RMB’s potential as a future reserve currency.

Today’s announcement further cements Britain’s position as the western hub for RMB, and represents the next step in the government’s long term economic plan to establish Britain as the centre of global finance.

Britain is already the fastest growing market in Europe for RMB payments, more than doubling volumes from July 2013 to July 2014.

In 2013, total RMB foreign exchange trading in London averaged $25.3 billion per day, which was a 50 per cent increase from 2012.

Chancellor George Osborne said:

“Key to our long term economic plan is increasing our exports to fast growing economies like China, and attracting more investment to our shores.”

“To do that, we need to make sure China’s currency, the RMB, is used and traded here, as that will be not only good for China, but good for British jobs and investment too.”

“That’s why I’m delighted to announce we’re kicking off the deal for Britain’s RMB bond, the first by a western country. It’s another step in cementing Britain’s position as the centre of global finance.”

The bond will be issued in due course subject to market conditions, and further details of the transaction will be announced by the syndicate banks, the Bank of England and HM Treasury.

Britain’s sovereign RMB bond will be a stand-alone issuance and will be of benchmark size. It will contribute liquidity to the small but fast-growing offshore RMB market and attract other market players in both the private and official sectors.

The government continues to meet its domestic financing requirements entirely in sterling, consistent with the debt management objective to minimise the costs of meeting the government’s financing needs, subject to risk.

The Bank of England is acting as HM Treasury’s agent in managing the issuance of the renminbi bond.

Apple Remains World’s Most Valuable Brand Corporation
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Apple Remains World’s Most Valuable Brand Corporation

eurobrand , the European independent experts for brand, patent & IP valuation & strategy, has released its global brand value GLOBAL TOP 100 rankings, which examine more than 3,000 corporations in 16 industries, with comparisons of Europe, America and Asia.

Apple remains the world’s No. 1 brand corporation with a brand value of €113.165bn, followed by Google representing a value of €67.471bn (+22,7%) which overtook the Coca Cola Company with a brand value of €64.775bn.

LVMH remains Europe’s most valuable brand corporation representing a brand value of €39.351bn (global rank 12), followed by Nestlé with a value of €33.049bn and AB Inbev representing a value of €29.858bn.

In summary:

• The Top 10 global brand corporations are US-based

• The US brand landscape is dominated by IT & Technology, Consumer Goods and Financial Services and represents46 out of the TOP 100 brand corporations. Europe represents 41 with Germans leading, whilst Asia is represented with 13 brand corporations.

• Volkswagen Group No. 1 global automotive brand

• Highest growth in Europe shows global No.3 automotive brand corporation Daimler Group gaining +20.60% and Deutsche Telekom Group growing by +12.10%.

• In Asia, China Mobile remains No.1 with a brand value of €43.929bn (global rank 11). Toyota shows the highest growth (+15.20%).

Volume of Global Goods Trade Set to Nearly Double by 2030
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Volume of Global Goods Trade Set to Nearly Double by 2030

The volume of global goods trade is set to nearly double to around $18 trillion by the year 2030, according to analysis by PwC economists.

And projections show there will be a reshuffling of the leading ‘actors’ on the global trade stage, with Asia becoming ever more important.

As policymakers gather later this month in Washington DC to assess global economic growth prospects, the outlook looks less optimistic than it did in January. This is mainly due to one-off events in the US and disappointing outturns in Japan and the Eurozone.

But despite these short-term setbacks in global economic growth, global goods trade is proving to be a longer term success, increasing by a factor of five since 1980 – compared to ‘just’ a tripling of global GDP in the same period.

Says PwC senior economist Richard Boxshall: “One of the long-term successes of multilateralism has been the strengthening of trade flows across the global economy. This trend has been good news for businesses, especially those with a global footprint. They have the ability to cushion a downturn in their home markets by switching their sales efforts to overseas markets.”

PwC economists estimate that the total volume of global goods trade will continue to grow from around $10.3 trillion in 2013 to around $18 trillion in 2030 (in constant 2013 US dollars). And at $3.9 trillion, trade between advanced and emerging markets will account for almost half this increase. Adds Richard Boxshall: “Our projection of real trade growth of around 3.3% per annum suggests that trade will be an important driver of global growth over this period.”

China is expected to grab a bigger slice of the world’s top trade routes by 2030, prompted by its consumers buying more overseas goods as they become wealthier, and the country remaining a key player in manufacturing – albeit probably moving to higher valued exports.

PwC analysis indicates that global trade is expected to enter a new phase in the next two decades, with intra-emerging-market trade growing at around 6% per annum. So that by 2030:

the China-India trade link will grow to become the world’s 7th largest trade route
resource rich economies like Brazil and Saudi Arabia are set to take advantage of China’s appetite for natural resources and further strengthen their already strong trade links with China
trade links between China and other lower cost South East Asian economies (e.g. Indonesia) will intensify as Chinese companies look to take advantage of the relatively lower wages in these markets.
So what does this mean for business? China is expected to reinforce its position as the major global goods trading hub. China’s lead over the US for the title of ‘most places in the top 20’ is expected to grow from two places in 2013 to seven places in 2030, further evidence of economic power shifting from the West to the East.

And the emergence of South East Asia as a centre for global trade will need to be accompanied by major infrastructure investments, particularly in transportation, to allow easier movement of goods to market.

WEF Names Global Growth Companies
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WEF Names Global Growth Companies

The World Economic Forum has announced its selection of 28 Global Growth Companies (GGCs) in Europe, Eurasia and the Middle East at the World Economic Forum Special Meeting on Unlocking Resources for Regional Development, which took place in Istanbul on 28-29 September.

These fast-growing companies, representing a broad cross section of industry sectors, have been selected for exceeding industry standards in revenue growth, promoting innovative business practices and their leadership in corporate citizenship.

The selected companies are: Al Baraka Banking Group (Bahrain), Outotec (Finland), Soprema(France), Poujoulat (France), Mane (France), Zalando SE (Germany), Fidor Bank (Germany), BMZ(Germany), Leica Camera (Germany), Novamont (Italy), Bonfiglioli Riduttori (Italy), Altri (Portugal),Prognoz ZAO (Russian Federation), Qiwi (Russian Federation), Svyaznoy Group (Russian Federation), Technonicol (Russian Federation), Velle Oats (Russian Federation), Saudi German Hospitals (Saudi Arabia), National Technology Group (Saudi Arabia), Desigual (Spain), Ebuzzing and Teads (Switzerland), Seranit Group (Turkey), Bayt.com Inc (UAE), Al Hilal Bank (UAE), Air Arabia (UAE), Owen Mumford (United Kingdom), Dialog Semiconductor (United Kingdom) andAVEVA (United Kingdom).

“The World Economic Forum is proud to recognise these 28 champions that are at the forefront of driving responsible economic growth, job creation and entrepreneurism in Europe, Eurasia and the Middle East. We look forward to their active and dynamic role in fostering inclusive, sustainable growth in the region,” said David Aikman, Managing Director and Head of New Champions at the World Economic Forum.

Speaking about the distinction, Avni Çelik, Chairman, Seranit Group, Turkey, said: “We are proud, also on behalf of our country, to have been selected as a Global Growth Company of the World Economic Forum. We look forward to working with other community members to promote corporate citizenship and innovative business practices.”

Together with Social Entrepreneurs, Technology Pioneers, Young Global Leaders, Global Shapers and Young Scientists, GGCs make up the New Champions, a larger World Economic Forum community of pioneers, disruptors and innovators. The 370 GGC companies worldwide contribute to the Forum’s meetings, projects and knowledge products, which in turn support them on their path to achieving responsible and sustainable growth.

UK Private Sector Growth Remains Strong
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UK Private Sector Growth Remains Strong

UK private sector growth continued to perform strongly in the three months to September, with expectations for a mild pick up in the next quarter, according to the Confederation of British Industry’s Growth Indicator.

The survey of 817 respondents showed growth ticked upwards. A firmer performance in business and professional services, and manufacturing, was balanced by slower growth in the retail and motor trades sectors, to give a survey balance of +23%. Although this is below the record high seen in May (+35%), it remains well above the long-run average.

The outlook for the next three months remains robust, with a modest increase in growth anticipated (+27%). However, expectations have eased from last month’s near record high (+38%) and from the generally stronger predictions seen over the course of the year.

Looking at the CBI’s Growth Indicator for the third quarter as a whole, economic growth has slowed slightly over the period, but nonetheless remains strong.

Rain Newton-Smith, CBI Director of Economics, said: “While optimism in the private sector may have lost a little of the spring in its step, this is in line with our forecast for a slight easing in the second half of the year.

“Growth remains robust though, and the recovery is progressing along the right path.

“However, companies will continue to monitor the fast moving international situation. Subdued activity in the Eurozone, together with increased geopolitical risks from tensions in the Middle East and Ukraine, make global economic waters more challenging to navigate.”

US firms pledge $14bn to Africa
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US firms pledge $14bn to Africa


A group of companies in the US have said they will commit to investing $14bn (£8.3bn) across Africa to boost infrastructure and energy resources on the continent.

The announcement, confirmed by US President Barack Obama, was made as the inaugural US-Africa Leaders’ Summit got under way. A bid to strengthen commercial ties and opportunities between the two, the Washington summit is being attended by more than 40 heads of state from across Africa.

Among the deals which were outlined on Tuesday August 5 was a $5bn tie-up between one of Africa’s leading businessmen, Aliko Dangote, and private-equity firm Blackstone.

The partnership will focus on sub-Saharan energy infrastructure plans.

Further investments from the deal are being made into Mr Obama’s Power Africa coffers, which the White House has said have also been swelled by a further $12bn in pledges. The public/private initiative is looking to develop a robust energy supply chain in Africa.


Other deals outlined included the World Bank’s investment of $5bn in Power Africa and General Electric’s $2bn which will be directed to further boost energy access and infrastructure, with the firm’s chief executive, Jeff Immelt, saying:

“We gave it to the Europeans first and to the Chinese later, but today it’s wide open for us,”

Another President-sponsored scheme, the Doing Business in Africa drive, will also push another $7bn of funding. Bringing the total level of investment by US companies to over $33bn, Mr Obama said:

“As critical as all these investments are, the key to unlocking the next era of African growth is not going to be here in the US, it is going to be in Africa, “

Mr Obama went on to explain that while growth in Africa will be encouraged by the US, it is with the clear understanding that American jobs are created and supported every time trade between the two expands.

Mark Schneider Elected to DuPont Board of Directors
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Mark Schneider Elected to DuPont Board of Directors

DuPont today announced the election of Ulf M. “Mark” Schneider, President and CEO of Fresenius SE & Co. KGaA to its board of directors, effective 22 October.

“Mark leads a significant global healthcare business and brings strong operating and international experience, including valuable perspective in emerging markets,” said DuPont Chair and Chief Executive Officer Ellen Kullman. “He will be a strong asset to DuPont as we continue to advance our strategy and bring the strength of our science to bear on some of the world’s most pressing challenges.”

Schneider, 48, has served since 2003 as President and CEO for Fresenius SE & Co. KGaA, a diversified global health care group, with US$27.0bn in revenue in 2013. Fresenius operates in approximately 100 countries and specialises in lifesaving medicines and technologies for dialysis, clinical nutrition, infusion and transfusion.

Schneider joined Fresenius in 2001, serving as CFO of Fresenius Medical Care, a Fresenius Group company. Previously, he was Group Finance Director of Gehe UK, a UK-based pharmaceutical distributor and held several senior executive positions with Franz Haniel & Cie, GmbH, a diversified German multinational company, since 1989.

Schneider graduated from the University of St. Gallen in Switzerland, where he also received a doctoral degree in Economics, and earned his MBA from Harvard Business School.

Tesco Appoints New CEO
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Tesco Appoints New CEO

Tesco plc has announced that Dave Lewis will join the board of Tesco on 1 October 2014 as chief executive officer in succession to Philip Clarke. Clarke will continue as chief executive until that date when he will step down from the board but will continue to be available to support the transition until the end of January 2015.

“Current trading conditions are more challenging than we anticipated at the time of our first quarter interim management statement on 4 June,” said the retailer in a statement. “The overall market is weaker and, combined with the increasing investments we are making to improve the customer offer and to build long term loyalty, this means that sales and trading profit in the first half of the year are somewhat below expectations.

“The outlook for the full year will be influenced by the extent to which benefits from the investments we are making begin to be seen; by conditions in the overall market; and by any steps that may be taken during the remainder of the year to improve our customer offer further.”

Sir Richard Broadbent, chairman of Tesco, said: “Having guided Tesco through a substantial re-positioning in challenging markets, Philip Clarke agreed with the board that this is the appropriate moment to hand over to a new leader with fresh perspectives and a new profile. We are pleased to announce today the appointment of Dave Lewis, president, personal care at Unilever, as our chief executive from 1 October 2014. Philip Clarke will continue as chief executive until that date and will continue to provide support to Dave until January 2015. Philip will also remain chairman of our joint venture with CRE in China until that date.

“Dave Lewis brings a wealth of international consumer experience and expertise in change management, business strategy, brand management and customer development. He is already known to many people inside Tesco having worked with the business over many years in his roles at Unilever. The board believes that with Dave’s leadership Tesco will sustain and improve its leading position in the retail market.”

On appointment, Lewis will receive a basic salary of £1.25m and standard benefits commensurate with his position.

Chinese Economy Picks Up Speed
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Chinese Economy Picks Up Speed

New data released by the Chinese National Bureau of Statistics shows that the world’s second-largest economy picked up momentum in Q2 2014. Output expanded by 7.5% year-on-year between April and June, slightly up from 7.4% in Q1.

The pick-up in speed was largely driven by a raft of government support, as the Chinese authorities loosened monetary policy and unleashed a mini-stimulus in a bid to support growth after lacklustre performance in the first quarter.

The Centre for Economics and Business Research (Cebr) sees the mini-stimulus performed in March as an important turning point for the Chinese economy, as this took the form of fiscal stimulus for infrastructure, compared to the beaten path of the credit mechanism. Industrial production growth accelerated to 9.2% year-on-year in June, compared to 8.8% in May. Monetary loosening also played its part in lifting Q2 growth: credit in the economy grew at its fastest pace in the three months to June, according to data released yesterday. Overall, government stimulus helped offset the drag from weak exports and a slowdown in the property market.

While looser monetary policy helped to lift up this quarter’s growth, rising levels of credit have revamped concerns about the risks around the country’s financial sector, with many worrying about a potential “Lehman moment” in China, especially given the rise of off-balance-sheet credit (commonly referred to as shadow banking).

Cebr is less worried about this: credit’s share of the Chinese economy is much lower than the equivalent share in the pre-Lehman period in the US. Moreover, the rise of shadow banking in China is perhaps best viewed as a natural consequence of the underdeveloped financial system and the lack of profitably opportunities for banks given the interest rate cap in place.

An Asian-style currency crisis also looks to be off the cards, with capital controls presenting the government with plenty of levers to control the currency. Finally, the debt-to-GDP ratio in China is estimated to be below 30%, leaving the authorities with plenty of fiscal room at their disposal to provide more stimulus further down the line as was done in March. With this in mind, Cebr expects China to comfortably meet the 7.5% target for year-on-year GDP growth in 2014.

Whitbread Appoints New Chairman
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Whitbread Appoints New Chairman

Whitbread PLC, the multinational hotel, coffee shop and restaurant company headquartered in Dunstable, has announced the appointment of Richard Baker as chairman with effect from 1 September 2014. He succeeds Anthony Habgood who, after nine successful years as chairman, announced in January his decision to step down from the board.

Baker has been an independent non-executive director on the Whitbread board since September 2009. He is currently Chairman of Virgin Active Group, a role he has held since 2008 and chairman of DFS Furniture Holdings where he has been since 2010. Baker was previously chief executive of (Alliance) Boots Group Plc from 2003 to 2007 and prior to that was chief operating officer at Asda Group Plc.

Sir Ian Cheshire, Whitbread’s senior independent director who led the nominations committee process commented: “We have conducted a thorough search, with the help of executive search consultants, to identify the most suitable person to become the next chairman of Whitbread. We were lucky enough to have a very strong field of potential candidates but at the end it was clear to us that Richard was the best choice to take on the role of chairman. He has a very strong record in both managing and chairing consumer businesses, a deep understanding of Whitbread’s operations through his role as a non-executive and a strong empathy with our ethos, culture and commitment to serving our customers. We are delighted that he has accepted the role.”

Commenting on his appointment, Baker said: “Throughout my time on the board, I have admired the strength of the company’s businesses and brands. I strongly endorse the common values shared throughout the group and its consistent focus on putting the customer first. It will be an honour to become chairman of this great company, and I look forward to it continuing to deliver on its strategy for growth. ”

Anthony Habgood, chairman, commented: “It has been a privilege to have been the chairman of Whitbread over the past nine years. It is a company with tremendous potential and I’m sure that Richard is the right person to chair the board for the next phase of its development. I wish Richard and everyone at Whitbread every success in the future”