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Dec 12, 2019

DealBook: Watching for Christine Lagarde’s Stance as Head of E.C.B.

11-13 minutes - Source: NYT




Credit...Francois Lenoir/Reuters
As the I.M.F.’s managing director, Christine Lagarde was one of the most recognizable and powerful women on the planet. But as she takes on her new role as president of the E.C.B., few know her worldview or how she might operate as a central banker. That could begin to change today.
Analysts and investors will be listening closely for clues about her stance on various issues when she gives her first news conference in the role. One of the main questions will be whether the central bank’s fire hose of economic stimulus is doing more harm than good, Jack Ewing of the NYT writes.
Ms. Lagarde has signaled that she will question the assumptions underlying central bank policy since the euro began to circulate two decades ago. And she is overseeing a comprehensive review of central bank strategy that could redefine its role.
“She’ll be very pragmatic, in my opinion, as was her predecessor and as I was myself,” Jean-Claude Trichet, who led the E.C.B. from 2003 to 2011, told Bloomberg.
Any hint that she is willing to extend her predecessor Mario Draghi’s approach by cutting rates further or increasing asset purchases could fuel a bond rally, Bloomberg says.
As voters in Britain go to the polls today, Prime Minister Boris Johnson has made “get Brexit done” his mantra, while his main rival, Jeremy Corbyn of the Labour Party, has made health care his top priority.
Big government spending is making a return in the main parties’ agenda, the WSJ writes. Mr. Johnson has vowed to spend 100 billion pounds ($132 billion) on infrastructure and billions more on policing and health care, while Mr. Corbyn has promised to put hundreds of billions into recasting Britain as modern state-run economy.
Public spending is back in favor around the world, even among some parties that traditionally favor balanced budgets and mistrust big government:
• President Trump cut taxes and increased military spending, moves that have pushed the U.S. budget deficit to $1 trillion.
• Prime Minister Shinzo Abe of Japan approved a $120 billion stimulus program to revive growth and help regions hit by a typhoon in October.
• Spain and France are relaxing budget goals to pay for tax cuts and more social benefits, and the typically frugal Netherlands, Finland and Germany are increasing spending on welfare, the military and infrastructure.
More: Whoever wins the British election is on track to be the country’s most consequential leader since Margaret Thatcher, a Politico analysis says.
The Fed’s final meeting of the year brought an end to rate cuts for 2019, and officials penciled in no rate changes next year, writes the NYT’s Jeanna Smialek.
The Fed’s rate policy will remain in place until inflation rises persistently, Jay Powell, the Fed chair, said after the meeting yesterday — a wait-and-see approach that indicates the Fed’s level of comfort with the U.S. economy.
The Fed cut rates three times this year “to guard the economy against the fallout of President Trump’s prolonged trade war and slowing growth abroad,” Ms. Smialek writes.
But officials have shown signs of increasing confidence. “Our economic outlook remains a favorable one,” Mr. Powell said.
More: The Fed wants to avoid the prospect of the U.S. entering a low-rate, low-inflation, low-growth trap.
American capitalism is at an inflection point, with enormous levels of inequality, declining economic mobility, less-competitive markets and an unsustainable fiscal trajectory, Henry Paulson and Erskine Bowles write in a NYT Opinion article.
But they say the solution is not to blow up the system or to maintain the status quo.
Proposals addressing universal basic income, “Medicare for all” and direct taxes on wealth “are fundamentally misguided and would result in economically harmful outcomes that could put our economy on an unstable and precarious path,” they write.
Other policy solutions could allow more people to share in America’s success, they say. The writers’ proposals:
• Investing in human capital, including education and productivity.
• Looking at more efficient ways to encourage work by supplementing wages.
• Correcting the country’s fiscal trajectory by raising more revenue, slowing the growth rate of health care spending and making Social Security sustainable.
• Overhauling the tax code to make it more progressive and take in more revenue.
Related: New York, London and Hong Kong are international financial centers, but they matter less in a world that is deglobalizing, Greg Ip of the WSJ writes.
The Trump administration has claimed that the North American trade pact, which is almost certain to become law, will add 76,000 jobs in the auto sector, but experts are not so sure, writes the NYT’s Niraj Chokshi.
“It’s not at all clear that there is going to be a positive effect on jobs in the auto industry,” an economics professor told Mr. Chokshi.
Provisions in the deal aimed at lifting employment could drive up the cost of making cars, which could reduce demand and jobs.
Unions have also expressed doubt. The deal does little to address the outsourcing of jobs, the International Association of Machinists and Aerospace Workers said Tuesday, a sentiment echoed by the United Automobile Workers union.
There is little evidence that the trade pact will provide the job increase that President Trump has promised, but many industry officials expressed relief that an agreement had been reached, because continuity and certainty are vital to the auto industry.
More: Concerned about the trade war, the Business Roundtable lowered its forecast for economic growth next year for a seventh straight time. (CNBC)
Harvey Weinstein and the board of his bankrupt film studio have reached a tentative $25 million settlement with dozens of his alleged sexual misconduct victims, the NYT’s Megan Twohey and Jodi Kantor report.
The deal would not require the once-towering Hollywood producer to admit wrongdoing or pay his accusers himself, according to lawyers involved in the talks.
Some key points:
• More than 30 alleged victims would share in the payout.
• Potential claimants who join in the coming months could also receive a share.
• The payout would be part of an overall $47 million settlement that is intended to close out the company’s obligations.
• More than $12 million of the settlement would pay legal costs for Mr. Weinstein, his brother Bob and four members of the company’s board.
The agreement would end nearly all of the lawsuits filed against Mr. Weinstein, although it requires a court’s approval and final signoff by all parties. And he still faces prosecution on criminal charges in New York.
Praveen Akkiraju, a managing partner at SoftBank Vision Fund, is departing to explore working with early-stage start-ups. (Bloomberg)
Harold Hamm will step down as chief executive of Continental Resources and take a board role.
James Littlefair resigned from the Treasury Department after his mother pleaded guilty to illegally helping him graduate from Georgetown University, a case that was part of the nationwide college admissions scandal.
Deals
• Nestlé has agreed to sell its U.S. ice cream business to Froneri in a deal valued at $4 billion. (Reuters)
• Britain’s competition regulator said it had “serious concerns” about Amazon’s purchase of a stake in the online food delivery group Deliveroo. (Reuters)
• Shares in XP, the Brazilian financial services group, jumped on their debut in New York after completing one of the year’s largest public offerings. (FT)
• WeWork’s rival in China, Ucommune, filed for an initial public offering on the New York Stock Exchange. (Axios)
• Problems in the I.P.O. market could hurt the S&P 500. (CNBC)
• Companies are on track to raise more money through initial public offerings on Nasdaq this year than on the New York Stock Exchange. (WSJ)
• The Hudson’s Bay chairman, Richard Baker, won the support of the proxy advisory firm Glass Lewis for a takeover of the Canadian retailer. (Reuters)
Politics and policy
• The Justice Department’s inspector general painted a bleak portrait of how the F.B.I. used its surveillance powers in the Russia investigation, but told lawmakers that he had no evidence that any mistakes were made out of political bias. The findings about surveillance are important beyond partisan politics. (NYT)
• The E.U.’s climate plan would pay nations that rely heavily on fossil fuels to change their ways. (NYT)
• Should Joe Biden pledge to serve just one term as president? His top advisers and prominent Democrats have revived a long-running debate. (Politico)
• Infrastructure, housing and climate change are among the top issues that mayors want the Democratic 2020 presidential candidates to address if elected. (Axios)
• How President Trump and the Democrats parted ways on lowering drug prices. (Politico)
Trump impeachment inquiry
• The House Judiciary Committee opened debate yesterday on two articles of impeachment against President Trump: abuse of power and obstruction of Congress. (NYT)
• What to expect from the debate, a process that lets committee members propose changes to the articles of impeachment. (NYT)
• Democrats are offering the weakest case for impeachment since Andrew Johnson, the WSJ argues. (WSJ Opinion)
• The all-hands-on-deck atmosphere in the White House is a change from just weeks ago, when Mr. Trump’s aides dismissed the idea of a war room. (NYT)
Tech
• A new policy at YouTube to police material is a response to criticism that the video service hasn’t done enough to curb bad behavior. (NYT)
• Blue Origin, Jeff Bezos’s space venture, will today try this year’s third launch and landing of its New Shepard rocket. (CNBC)
• Facebook’s ranking on Glassdoor’s list of best places to work slid for a second year in a row, tumbling 16 spots to 23rd. (CNBC)
• Siri and Alexa are listening to people’s most intimate moments. (Bloomberg)
• George Laurer, the inventor of the bar code, has died at age 94. (NYT)
Best of the rest
• Investors are gritting their teeth for a “low-return decade.” (FT)
• Rising bond defaults in China raise questions about whether Beijing can effectively address its huge debt problem. (NYT)
• Aramco reached Crown Prince Mohammed bin Salman’s $2 trillion goal after a surge on Day 2 of trading. (Bloomberg)
• JPMorgan Chase is taking a bigger swing at wealth management in an effort to better compete with big-bank rivals. (WSJ)
• A Maryland real estate company surprised its employees with $10 million in holiday bonuses, with the average bonus being $50,000. (WaPo)
• The “Succession” star Nicholas Braun is set to play the WeWork founder Adam Neumann in a limited-run TV series about the company. (Hollywood Reporter)
• Bankrupt American brands like Toys ‘R’ Us and Tower Records are thriving in Japan. (CityLab)

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