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Economy

Dubai faces 5.5% recession this year as $10 bln debt repayments loom, BofA says

DUBAI, May 31 (Reuters) – Dubai could see a recession of around 5.5% in 2020 as it faces about $10 billion in debt maturities this year while revenues are expected to drop in line with the pattern of the 2009 crisis, Bank of America said in a research note.

Measures to stem the spread of the coronavirus have dealt a blow to Dubai’s economy, bringing vital industries like tourism and aviation to a near halt.

Bank of America estimates that Dubai’s fiscal deficit could widen to $4.4 billion, or 3.9% of GDP, and could be as high as 5.3% if interest payments on a loan from Emirates NBD, Dubai’s biggest lender, are included.

Financing of the fiscal deficit or liquidity injection into government-related entities (GREs) will likely primarily be via loans from ENBD, Bank of America said. Dubai could also draw on $1.4 billion in deposits at ENBD or issue privately placed bonds.

International Monetary Fund data puts Dubai government and GRE debt at 110% of GDP, unchanged in nominal terms since the 2009 global financial crisis, but Bank of America said “more corporate distress” was possible in a sustained downturn.

“Sustained revenue losses could generate corporate solvency concerns if the recovery is shallow,” it said.

Citing IMF data, the bank said Dubai and government-related entities face some $10 billion in debt repayments this year.

It said it expected the government and banks to receive support from oil-rich Abu Dhabi and the UAE central bank, if needed, but that debt redemptions from Dubai government companies in the coming years were more at risk.

Sources told Reuters this month that the governments of Abu Dhabi and Dubai were discussing ways to prop up Dubai’s economy by linking up assets in the two emirates. Dubai denied the report. (Reporting by Yousef Saba; Editing by Nick Macfie)

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Economy

Euro zone sentiment rebounds less than expected in May

BRUSSELS, May 28 (Reuters) – Euro zone economic sentiment rebounded less than expected in May when governments began easing coronavirus lockdowns, data showed on Thursday, as the mood in services and construction sectors continued to deteriorate.

The European Commission’s monthly survey showed on Thursday that economic sentiment in the 19 countries sharing the euro improved to 67.5 points this month from an all-time low of 64.9 in April, mainly thanks to more optimism in industry and among consumers.

Economists polled by Reuters had expected an increase to 70.3 in May. The April number was revised down to a record low after updates to business confidence in France.

Industry sentiment went up to -27.5 in May from -32.5 in April, falling marginally short of expectations, and to -18.8 among consumers from -22.0.

But in services, many of which remain frozen under lockdown rules, sentiment deteriorated to -43.6 from -38.6 rather than improve as expected by markets. In construction, sentiment also fell – to -17.4 from -16.1. It was almost unchanged in the retail sector.

Inflation expectations among consumers edged marginally lower to 28.6 from 29.2 in April and in industry inched down to -8.6 from -7.5. (Reporting by Jan Strupczewski; editing by Philip Blenkinsop)

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Economy

Royal Bank of Canada quarterly profit slumps on higher loan loss provisions

May 27 (Reuters) – Royal Bank of Canada reported a 54% drop in quarterly profit on Wednesday, as the lender kept aside more funds to cover bad loans amid the COVID-19 crisis that has battered the economy.

Net income fell to C$1.48 billion, or C$1 per share, in the second quarter ended April 30, from C$3.23 billion, or C$2.20 per share, a year earlier.

“The unprecedented challenges brought on by the COVID-19 pandemic led to increased provision for credit losses of $2,830 million, up $2,404 million from last year”, the bank said in a statement. (Reporting by Abhishek Manikandan in Bengaluru; Editing by Shinjini Ganguli)

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Economy

Colorado Office of Economic Development will not be spared from budgetary ax – The Denver Post

Given that more than 475,000 Colorado residents have filed for unemployment benefits the past two months, and with the state facing a projected $3 billion revenue shortfall because of the COVID-19 outbreak, major cuts are looming everywhere, Betsy Markey, executive director of the Colorado Office of Economic Development and International Trade told the Colorado Economic Development Commission on Thursday morning during a video meeting.

OEDIT received a $58.7 million appropriation this fiscal year, according to its FY 2020 Performance Plan. The Joint Budget Committee is looking to trim 27% from OEDIT’s allotment for the next fiscal year.

Markey detailed some of the specific cuts being proposed, noting that things could change by June. The Colorado Tourism Office is looking at a 37% cut in its budget. That includes money to fund marketing campaigns to bring tourists back to the state in the summer of 2021 and beyond.

Colorado Creative Industries, which to foster the arts and cultural activities in communities across the state, is facing a 75% cut in funding. The JBC plans to provide the minimum needed to win a match in federal dollars.

The state’s Office of Film, Television & Media, which has already had its allotment severely slashed in recent years, is looking at a 62% cut in funding, which could spell the death knell for the state’s nascent film production industry.  And the Outdoor Recreation Office, a relatively new program, is looking at a 33% cut to its budget.

Global Business Development, which helps recruit companies to the state and promote trade, should see much of its funding preserved, Markey said. It oversees the state’s Small Business Development Centers, which have helped business owners navigate the downturn and obtain CARES Act assistance.

Business Funding & Incentive is expected to take a hit, especially for programs dependent on cash funds, like the Advanced Industries program, which is funded through taxes on gaming revenues that have all but dried up.

“We are working hard to make sure the legislature understands the importance of the economic tools we have. They will be instrumental in helping us recover from the pandemic,” Markey said.

If cuts do come down, OEDIT will try to manage them in ways that don’t damage economic recovery programs and perpetuate future revenue shortfalls.

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Economy

MORNING BID-A turn for the worse

(A look at the day ahead from EMEA deputy markets editor Sujata Rao. The views expressed are her own.)

* Note: There will be no Morning Bid on Monday, May 25, because of a public holiday in the UK. Things have taken another turn for the worse between the world’s two superpowers. Escalating rhetoric from President Donald Trump hit Wall Street yesterday, but Asian markets today are red all over following China’s proposal for a new Hong Kong law to ban sedition, secession and treason. That will almost certainly reignite protests in Hong Kong and drive another wedge with Washington.

The Hang Seng index plunged 5% at one point and the Hong Kong dollar slid the most in six weeks. Broader Asian shares lost 1%. World stocks are down around 0.7%, but that may pick up steam as a pan-European index is down 1.5% and Wall Street is expected to open weaker. The offshore yuan is approaching a three-week high beyond 7.14, and mainland blue-chip shares have fallen almost 2%.

Another headwind – China dropped its annual growth target for the first time since 1990, with Premier Li Keqiang warning of “unpredictable factors”.

Overall, the risk-off mood sent 10-year U.S. Treasury yields to a four-day low and the dollar index marching higher for a second day. Beijing’s failure to publish growth targets has sent commodity prices reeling, in turn inflicting losses of 0.7% to 1.3% on currencies such as the Aussie dollar, South African rand, Norwegian crown and Russian rouble. The euro is off yesterday’s two-week highs.

The setbacks have put paid to hopes of a market rebound as economies re-open. That COVID-19 risks remain alive was shown by India, which posted its biggest ever 24-hour rise in new infections after easing its lockdown. Without a vaccine, there seems little chance economic activity can normalise — Federal Reserve Chair Jay Powell warned again yesterday of a “downturn without modern precedent”.

In another sign of the times, India cut its benchmark repo rate by 40bp to 4% in an unscheduled move.

We get minutes from the European Central Bank’s last meeting — interesting given markets widely expect the bank to expand its emergency stimulus programme on June 4. All eyes are also on next week’s European Commission meeting, which will debate the Franco-German proposal for a joint recovery fund. The proposal, marking a huge change in the German stance, has already pushed Italian yields into their biggest weekly fall in two months.

The UK negative interest rate debate is being kept alive by miserable economic data, not least the record 18% crash in April retail sales. Sterling is again below $1.22 and seven-year UK borrowing costs have just gone negative.

“Real” gilt yields, read from inflation-linked debt, bear watching – these have collapsed 60 to 80 basis points since mid-March, with 10-year linkers yielding minus 2.9%, Tradeweb data shows.

In European corporate news, stocks exposed to Hong Kong — HSBC, StanChart and various luxury firms — are suffering. Burberry reported a 27% quarterly drop in comparable sales, and pulled its final dividend.

Abu Dhabi’s Etihad Airways is planning to lay off 1,200 employees as it considers permanently grounding its Airbus A380s and never operating the A350s it has ordered. Fiat Chrysler said auto sales in Brazil were down 70% to 75% in May versus a year ago. Carmaker Nissan is considering 20,000 job cuts.

On bonuses and dividends — Lloyds Banking Group investors rebelled against its policy for top bosses. United Utilities Group posted a 9% rise in full-year operating profit, but will review its 5-year dividend policy.

Equity-raising continues — On The Beach Group will raise around 20% of its share capital, while Time Out magazine is launching a share sale to cut debt.

In emerging markets, a big day for Argentina, which will mark its ninth sovereign debt default by missing a $500 million debt payment. But good news for Ukrainian bonds: the country signed a new $5 billion, 18-month stand-by deal with the International Monetary deal.

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Economy

Argentina creditor group member says 'should be enough flexibility to get to a deal' on debt

BUENOS AIRES, May 21 (Reuters) – A prominent member of an Argentina creditor group member said on Thursday that there “should be enough flexibility to get to a deal” with the government on the country’s debt restructuring, but added “let’s see.”

Hans Humes, who heads Greylock Capital and has spearheaded a group of hedgefunds and other private creditors, was speaking at a virtual conference on Argentina’s ongoing debt negotiations.

Argentine officials are weighing counteroffers from its creditors for the restructuring of $65 billion in debt before a May 22 deadline.

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Economy

CFL cancels 2020 Touchdown Atlantic game in Halifax

The Canadian Football League’s 2020 edition of Touchdown Atlantic has been cancelled.

The CFL made the announcement in a news release Wednesday.

“The only thing deeper than our regret is our resolve to return to Atlantic Canada,” CFL commissioner Randy Ambrosie said in a statement.

“It pains us that this pandemic is preventing us from showing our friends in Nova Scotia, in person, just how saddened we are by the senseless tragedy they have been forced to bear, and how much we admire their strength.”

Ambrosie said the league will directly reach out to the fans who have purchased tickets.

On March 11, the league announced all 10,000 tickets were sold. The game was slated to be preceded by a three-day “mini Grey Cup festival,” a series of media events and community visits by both teams.

Ambrosie also announced the earliest the CFL will return to play is this September. He said a final decision will not be made until government lets them know it’s safe for players and fans.

“We know there is a great deal of interest in whether we might play with or without fans, or with social distancing rules in place,” he said. “We are examining all possibilities with both public safety and financial viability in mind.

“It’s just too soon to speculate on what a return to play in September might look like.”

 

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Economy

WorkSafeBC inspections expected to focus on education rather than punishment

WorkSafeBC says inspectors will be dropping in one businesses to enforce provincial guidelines as early as next week.

But the plan is to focus on education rather than shutting down businesses without a proper COVID-19 plan.

“We are going to start off small, but by this time next week you are going to start seeing inspectors on worksites,” head of prevention services for WorkSafeBC Al Johnson said.

“Our inspections will be a soft sell approach. We will start with calls. We have prevention officers that will be assigned to these sites. Slowly we will get them but we will not get to all of them.”

Labour Minister Harry Bains is scheduled to hold a press conference on Thursday to discuss the WorkSafeBC sector guidelines relating to B.C.’s restart plan.

Businesses are required to post a COVID-19 plan so employees and the public can understand how their safety is being protected.

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Anyone hoping to operate under Phase 2 of the province’s re-opening plan must be able to follow the guidelines provided by WorkSafeBC.

“We are looking at some of the higher-risk areas that we know of, like some of the processing plants, meat processing plants, fruit and vegetable, places like that,” Henry said.

“If you’re an employee who has concerns, then you should talk to WorkSafeBC because WorkSafeBC has inspectors who are able to follow up on those as well.”

Provincial environmental health officers are also working to ensure guidelines are followed. The officers normally focus on things like restaurant inspections to ensure that food is safe.

As a member of the public if you have concerns about safety in a business, whether it’s a nail salon or a restaurant, then you can complain to your local public health and they will do inspections.

There are different levels of public health inspections and, as with WorkSafeBC, the goal is to take an educational approach.

“Our first line of action is not to find people and shut them down. It’s to ensure that they are taking the necessary actions that we need to keep people safe,” Dr. Henry said.

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Economy

RPT-Powell, Mnuchin to face Senate grilling on U.S. coronavirus response

(Repeats with no change in text)

By David Lawder

WASHINGTON, May 19 (Reuters) – The U.S. government’s handling of its massive economic response to the coronavirus pandemic will come under scrutiny on Tuesday as Treasury Secretary Steven Mnuchin and Federal Reserve Chair Jerome Powell testify before the Senate Banking Committee.

Senators are expected to grill Mnuchin and Powell about actions still needed to keep the world’s largest economy afloat and about missteps in rolling out some $3 trillion in aid so far. (See graphic here showing how the money moved.)

As more states reopen businesses, the government is closing in on the end of an eight-week program to funnel money to small businesses to avoid layoffs, prompting calls to extend the $660 billion Paycheck Protection Program. President Donald Trump said on Monday that such an extension “should be easy.”

Other programs aimed at helping larger companies and municipal bond issuers through a sharp recession are just getting started and Powell and Mnuchin may provide details on their application.

Powell said in prepared remarks for the hearing released on Monday that the Coronavirus Aid, Relief and Economic Security (CARES) Act was “critical” to the U.S. central bank’s ability to expand credit throughout the economy to offset the economic blow from the coronavirus.

In remarks broadcast on Sunday night, Powell said unemployment may hit 25% before it begins to fall, with a contraction in gross domestic product of 20% or more. He added that positive “medical metrics” that can build consumer confidence would be critical to economic recovery.

Senators are also likely to try to elicit the two officials’ views on another $3 trillion aid bill crafted by House of Representatives Democrats that narrowly passed that chamber on Friday. The measure is opposed by Senate Republicans as negotiations continue between the two parties and the Trump administration.

Mnuchin also will face questions over processing glitches that held up small-business loan applications as the Paycheck Protection Program was rushed into service in early April, as well as on abrupt policy changes that required many larger, publicly traded restaurant chains with access to capital markets to return their funds under the threat of audits.

A separate congressional oversight board issued its first report here on the response, consisting largely of questions that could be asked in Tuesday’s hearing.

Among them are how the agencies will measure success and isolate the effects of the measures from other state and federal efforts. (Reporting by David Lawder and Heather Timmons; Editing by Peter Cooney)

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Economy

Some Ontario businesses allowed to reopen as COVID-19 restrictions loosen

Some Ontario businesses will be allowed to open their doors today after being closed for two months in an effort to slow the spread of the novel coronavirus.

The province is starting the first stage of its economic reopening today, giving the green light to retailers, some sports centres, vehicle dealerships and other businesses to resume.

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But the provincial government stresses those businesses still have to comply with public health guidelines such as physical distancing as they welcome customers.


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