Live Blog

December 17, 2014, 8:07pm

The Federal Reserve's policy statement shows it's inching closer to an interest rate hike.

Here are some of the key takes.

"Considerable time" is gone

The Fed has dropped its "considerable time" approach to interest rates rises instead favouring "patience" in normalising policy. "Considerable time" was widely believed to mean six months so many commentators now foresee rate hikes sooner rather than later. 

Inflation forecast cut

The Fed has cut its inflation expectations for next year saying prices would rise between 1 per cent and 1.6 per cent. This is a sharp downgrade from a forecast of between 1.6 per cent and 1.9 per cent given in September. It's estimate for 2016 remained unchanged with inflation between 1.7 per cent and 2 per cent.

Unemployment predictions improved

It now expects the unemployment rate to move down to between 5.2 per cent and 5.3 per cent towards the end of 2015 which is a slight improvement on September's forecast.

What for oil?

Tumbling oil prices and Russia's slowdown haven't phased the Federal Reserve with growth forecasts unchanged .

Analyst reaction:

Naeem Aslam, chief market analyst at Avatrade said:

The Fed has slightly altered the language and introduced a new word which is "Patience".

When she announced this today it create a lot [of] confusion, but later she mentioned that the rate hike could take place in [the next] couple of meetings. This means that the most important meeting will be in April and expectations will be high going into this ... for rate rises.

The statement was dovish and here the press conference was very hawkish nevertheless, equity market is loving the news for now and traders have pushed US stocks up along with the USD.

Man Investments logo
December 17, 2014, 4:52pm

Man Group, a London-listed hedge fund manager, will buy Connecticut-based Silvermine Capital Management for $70m (£45m).

Man, the world's largest listed hedge fund, will pay $23.5m in cash up front, followed by two cash payments of up to $16.5m after one year, and another potential $30m after five years.

Silvermine, a leveraged loan fund with around $3.8bn under management, expects the acquisition to complete in the first quarter of next year after which it will operate under the Man GLG Silvermine name.

The deal will improve Man's standing in the US collateralised loan obligations market which bundles up and then dices a number of risky business loans.

Mark Jones, co-chief executive of Man Group said:

The acquisition of Silvermine will transform our existing credit business and position us to benefit from strong demand for US CLOs and other credit strategies. Silvermine is a highly respected, specialised business with an excellent track record of out performance.

Earlier this year the group acquired Boston-based equity firm Numeric for up to $494m. This was just weeks after a deal in which it acquired a smaller fund of hedge fund firm Pine Grove in the US.

President Obama
December 17, 2014, 4:28pm
US President Barack Obama has just announced the end of the longest-standing trade sanctions in US history, as part of a ground-breaking thaw in relations with Cuba. 
 
The two long-time enemies, which sit on the opposite ends of the political spectrum, have agreed to “open economic and travel ties”, the most significant improvement in the relationship in half a century. 
 
A trade embargo has been in place since 1960, two years after the Cuban Revolution. It was extended to include almost all imports in 1962 after the Cuban Missile Crisis, though in 2009 Obama relaxed the travel ban for Cuban-Americans. 
 
Obama and Cuban President Raul Castro spoke by phone for more than 45 minutes yesterday, reportedly the first substantive presidential-level discussion between leaders of the two nations since 1961.
 
 
Both addressed their respective nations at midday today EST, though the news was leaked ahead of time. 
 
In his address, Obama spoke of the damaging effect trade sanctions had had on the people of Cuba, acknowledging the measures had failed to change Cuban policy. 
 
“It is clear that decades of US isolation of Cuba have failed to accomplish our enduring objective of promoting the emergence of a democratic, prosperous and stable Cuba," he said. 
 
“Though the policy has been rooted in the best of intentions, it has had little effect. Today, as in 1961, Cuba is governed by the Castros and the Communist party.
 
"We cannot keep doing the same thing over five decades and expect a different result.” He added: "Our sanctions on Cuba have denied the people access to technology that has helped others around the world." 
 
Obama noted that with the passing of the Cold War, the greatest threats came from terrorist groups such as Islamic State, adding  "a nation that renounces terrorism should not face sanctions".  
 
A statement, called Charting a New Course on Cuba, outlined the new plans. It includes:
 
* Discussions to take place with the US' Secretary of State to establish diplomatic relations with Cuba
 
* In the coming months, to open an embassy in Havana and carry out “high level exhanges and visits between our two governments”.
 
* The US will support improved human rights conditions and democratic reform in Cuban-Americans
 
* The two countries will work together on “matters of mutual concern”, such as migration, drugs, environmental protection and human trafficking
 
As well as this, licensed US travellers will be allowed to import $400-worth of goods from Cuba, of which no more than $100 can be tobacco and alcohol related products. 
 
The statement added: “With our actions today, we are calling on Cuba to unleash the potential of 11 million Cubans by ending unnecessary restrictions on their political, social and economic activities. In that spirit, we should not allow US sanctions to add to the burden of Cuban citizens we seek to help.”
 
After Cuba, the US' longest-standing sanctions against another nation is with Iran. That began in 1979 in response to the Islamic Revolution. Others include North Korea, Syria and Sudan. 
 
The current Russian sanctions are directed at businesses and individuals rather than the state.
 
December 17, 2014, 4:00pm

Following days of losses, the rouble strengthened against the dollar this afternoon after Russia's central bank outlined a range of measures to boost the countrys ailing banking sector.

Among the measures put forward, the bank said it planned to freeze the valuation of banks' securities portfolios at the previous quarter, abolish caps on the amount banks are allowed to charge for loans, and ease the pressure on banks to report falls in capital ratios. From 7 January, caps on interest rates for consumer loans will be abolished altogether.

The rouble fell to 60.5 per dollar, down from 67.9 at yesterday's close.

The RCB also said it will recapitalise credit institutions next year, in partnership with the Kremlin, and that banks will be offered more opportunities to buy foreign exchange at official auctions. It will also offer more support to the Moscow Stock Exchange. 

George Osborne
December 17, 2014, 3:28pm

The chancellor has announced the government will sell more shares in Lloyds Banking Group within the next six months.

The sale, to be managed by investment bank Morgan Stanley, will help the government raise up to £2bn, UK Financial Investments (UKFI), the body which manages the government's investments, confirmed.

Presently it owns around 17.8bn ordinary shares, representing around 25 per cent of the company. 

George Osborne said in a statement:

I can confirm today that the government is taking the next step in returning Lloyds Banking Group to private ownership.

The trading plan I'm initiating today is made possible by our long term economic plan which is delivering a more secure and resilient economy. It is another step in reducing our national debt and in getting taxpayers' money back.

A trading plan involves the gradual sale of shares over time and could "commence in the coming days."

Shares will not be sold below the average price paid of 73.6p at the time of the bailouts back in 2008.

The government has so far raised £7.4bn through two shares sales in early 2013 and March this year. The sales reduced its stake from 40 per cent to just under 25 per cent.

It comes a day after Lloyds and another government-owned bank, RBS, scraped through the Bank of England's stringent new stress tests. The minimum capital ratio needed to pass the stress test is 4.5 per cent; and RBS had 4.6 per cent, while Lloyds had 5 per cent.

Earlier this year RBS was forced to reveal it had overstated its ability to withstand another financial crisis. The beleaguered bank was also slapped with a £56m fine for an IT glitch back in 2012.

Lloyds was saved through a £37bn bailout package alongside RBS by the government in 2008. 

December 17, 2014, 3:03pm

Shares in insurer Catlin whizzed up 10 per cent today after the group said it is in talks with XL Group over a possible takeover which would value it at $3.9bn (£2.5bn).

XL Group would pay 410 pence per share in cash and 0.130 share for each Catlin shares, the Lloyds of London insurer said in a statement on the London Stock Exchange today.

Bermuda-based Catlin said:

A combination of XL and Catlin would create a leading player in property and casualty insurance and reinsurance and expand opportunities for the combined underwriting team in the global marketplace.

Catlin also said if the deal goes through, shareholders will not receive a final year dividend payment.

In the past, the group has attracted criticism for pursuing international expansion over returning equity to its shareholders.

Earlier this year the insurance group reported gross written premium of $4.9bn (£3.1bn) for the first nine months of 2014, an 11 per cent increase on the $4.4bn reported in the same period last year.

The Queen
December 17, 2014, 2:17pm
Bookmakers Coral has suspended betting on whether the Queen will announce her abdication in her Christmas Day broadcast after a number of “unusual” bets were placed today. 
 
A spokesman told City A.M a handful of different bets had been made within half an hour of each other – prompting the team to question whether there had been a leak from Buckingham Palace. 
 
Coral had been offering 10-1 odds on the Queen announcing her abdication during the Christmas Day speech, but given how obscure and specific the market was, the bookie had not received any bets on it “for months” he said.  
 
“It's a big coincidence to have two people within half an hour.”
 
He noted that there had been a similar pattern to betting around the Duchess of Cambridge – nee Kate Middleton's - first and second pregnancies. “Betting on the Royal Family is very popular, but they do have their leaks.”
 
“It could be smoke with no fire – could be a couple of people chancing it – but someone might have heard a whisper,” he said. One of the bets was placed in a central London shop while the second was made online. 
 
The last time was January, when a £200 bet was placed. Coral also suspended betting at that point. 
 
“Throughout the year there has been major speculation about the Queen’s future but today’s gamble has really caught us by surprise,” said Coral’s Nicola McGeady.
 
“As far as we are concerned there’s no smoke without fire when bets like this come through all in succession, so we have decided to be safe rather than sorry and pull the plug on the market,” added McGeady.
 
A Buckingham Palace spokesman declined to comment. 
 
There has been much debate about whether the Queen could abdicate, but on her 21st birthday in 1947 she gave a speech in which she said: "I declare before you all that my whole life whether it be long or short shall be devoted to your service and the service of our great imperial family to which we all belong." 
Oil field
December 17, 2014, 2:15pm
The precipitous fall in the oil price has resulted in sharp declines in share prices around the world, but the long-term effect of a lower oil price is to reduce the amount of cash in the pockets of oil producers and increase the amount available to consumers to spend.  Overall, this is positive for markets and this will ultimately be reflected in share prices.  
 
Of course, some indices have a greater reliance on resources stocks than others. Some 25 per cent of the FTSE 100 is resource-related, which is why the UK market has been hit particularly hard.  
 
In addition, the UK has a high tax on petrol and so the effect of lower crude prices will not benefit consumers to the same extent as in the US.  Indeed, it is estimated that the annualised benefit to the average motorist in the US from the recent decline in crude prices is $800, the equivalent of a two per cent pay increase.
 
The big question commentators are focusing on now is whether there has been a step change in oil prices.  
 
The current fall in prices has been brought about by two key factors: the weakening Chinese economy and increased levels of oil production in the US, resulting from the use of new technologies (hydraulic fracturing and horizontal drilling).  These two factors have led the International Energy Agency (IEA) to revise its forecasts for 2015: it is now predicting demand for oil will fall by 900,000 barrels per day next year as against its previous estimate of a rise in demand of 1.1bn barrels per day.  
 
At the same time, US production is expected to increase by 685,000 barrels.  This suggests the oil price may have further to fall.  Activity in the futures markets also suggests a bounce is some way off and US oil was trading at just over $57 per barrel on Friday, a fall of 11 per cent this week alone.
 
The response of Opec to this latest oil price crisis has been extremely interesting.  Normally it would have been expected to reduce production in response to price weakness, but at its November meeting it was decided to leave production at current levels.  
 
The head of Opec, Abdullah al-Badri, said its decision was not aimed at any other oil producers.  
 
“Some people say this decision was directed at the United States and shale oil.  All of this is incorrect.  Some also say this was directed at Iran and Russia.  This is also incorrect,” he said.  
 
One cannot help thinking, however, that the decision was firmly aimed at US shale producers. The Economist estimates 15 per cent of US shale producers will lose money if prices remain below $60 per barrel for any length of time and many of those producers are highly leveraged.  This also has implications for the banks that have lent to shale producers and the exact scale of their exposure is unclear.
 
Rapid Chinese growth over the last 15 years has undoubtedly inflated the price of all commodities, including oil. 
 
Andy Xie, a well-respected economist, argues China has been through a fifteen- year super cycle of industrialisation and that growth will now normalize, which will have a long-term impact on oil prices.  
 
He recently said during an interview with CNBC: “When China goes into a normal situation, I think that the oil price will become normal too, so $60 would be the normal price for the next five years or so.”  
 
A knock-on effect of oil price weakness is usually US dollar strength. We have begun to see a strengthening of the dollar over the last few months.  In the 1970s oil crisis, the dollar rose 50 per cent against sterling.  In the 1980s, it rose 40 per cent against a basket of currencies when the oil price was weak and the same was true in the latter half of the 1990s.
 
Recently, the dollar has been affected by quantitative easing (QE), but that has now come to an end and the dollar is in demand again.  
 
This rise is further supported by better than expected US GDP growth.  In the third quarter, the US economy grew at an annualized rate of four per cent and it is the only economy growing faster than expectations among the G10 nations.  It is estimated that lower oil prices have added over 0.5 per cent to GDP growth in the US.  Higher rates of growth mean interest rate rises are in prospect, which will further bolster the US dollar.  
 
Overall, lower oil prices are a good thing for the global economy and under normal circumstances, stock prices should have risen.  However, in the short term, the market has focused on marking down oil and commodity companies and there has been a panic surrounding slower Chinese growth.  
 
There is also the added problem that stock prices looked generally high prior to the decline in oil prices as QE led to higher valuations as liquidity found its way into stock markets.  But the fact is that the recent fall in the oil price has taken $1.3 trillion (£827bn) from oil producers and put it into the hands of consumers. This has to be positive news.
 
 
Analyst, relaxing
December 17, 2014, 2:00pm

What skills got people hired in 2014? LinkedIn has dug through its data for this year and found what gets employers salivating.

Soft skills, these are not. The overarching theme is data -  the top skill is statistical analysis and data mining. It crops up again at number 11, with data presentation, and then at positions 21 and 22, with data engineering and data management. It's not until quite far down the list that more traditional skills - including recruiting, economics and mining - come into play.

In fact, science, technology, engineering and mathematics skills dominate the top 25, taking up nine of the top 10 positions. The only one outside those subjects - foreign language translation - suggests business is continuing to become increasingly global. Anyone know how to say "can you write me a recommendation" in Mandarin?

Rank

Job

1. Statistical analysis and data mining
2. Middleware and integration software
3. Business intelligence
4. Storage systems and management
5. Perl/ Ruby/ Python
6. Mobile development
7. Network and information security
8. SEO/ SEM marketing
9. Foreign language translation
10. Java development
11. Data presentation
12. Web architecture and development framework
13. Public policy and international relations
14. C/ C++
15. Algorithmic design
16. Integrated circuit design
17. Recruiting
18. Corporate law and governance
19. SAP ERP systems
20. Economics
21. Data engineering and data warehousing
22. Data management and software
23. Mining and commodities
24. Marketing campaign management
25. User interface design

 

December 17, 2014, 1:52pm

Britain's small businesses are missing huge opportunities by failing to adapt adequately to the digital age, according to research published today.

The UK's embrace of the American retail tradition of Black Friday has served to highlight how businesses are falling behind their customers. Mobile has become a key part of the consumer experience.

On Black Friday, 30 per cent of online orders were made on mobile, while the figure for Cyber Monday was still a hefty 22 per cent.

Two-thirds of consumers use the web to find relevant information about the things they want to buy, and 75 per cent shop online. However, a whopping 71 per cent of UK small businesses are still incapable of handling online consumers.

Britain's consumers are becoming increasingly tech savvy, providing a major challenge for smaller firms. Research published by Nominet earlier this month showed more than a fifth of consumers expect to be able to email a high street business and a quarter believe that a local high street store’s website says a lot about the company.

The study, commissioned by Johnston Press’ digital marketing service and conducted by Buzzboard examined seven "Digital Readiness" indicators across almost one million small firms in the UK.

The research found in every single category, most small businesses were failing to maximise their potential for sales. Even more worryingly, 44 per cent of small firms had no website to speak of, and of those that did, 93 per cent provided no contact number on the home page.

On top of that, only half of the websites have a contact form and under 40 per cent give an email address. This has led to a situation where 60 per cent of websites are not compatible across platforms.

Chris Brake, managing director of Johnston Press’ Digital Kitbag service, commented:

Digital opportunities offer huge potential for small firms and so it is shocking to see so few are getting this right. Small businesses are in a prime position to drive the UK economy, but to fulfil their potential they must recognise the importance of digital and also take advantage of the numerous sources of help and advice available to them.

The numbers for small firm interaction with social media paint an even gloomier picture, with 69 per cent having no Twitter account, 70 per cent no Facebook page and 89 per cent no LinkedIn.

There may yet be rich rewards for those businesses that decide to up their game and plunge themselves into the online era while their competitors remain isolated from the same opportunities.

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