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Globescan: Awaiting Signals

Central banks around the globe are preparing financial backstops to mitigate market turmoil in case Britons vote next week to leave the European Union, hoping to buffer the real economy from any short-term impact

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The US Federal Reserve kept interest rates unchanged and signaled it still planned to raise rates twice in 2016, though it said slower economic growth would crimp the pace of monetary policy tightening in future years. The central bank’s decision to stick with its 2016 rate path, however, appeared shakier, with six of its 17 policymakers projecting just one increase this year. Only one Fed policymaker had done so when economic forecasts were last issued in March. A sharp slowdown in US hiring in May had fueled doubts about the strength of the labour market. Fed Chair Janet Yellen acknowledged the need to see clear signs of economic strength before lifting rates.

Net Gain

High-speed Internet service can be defined as a utility, a federal court has ruled, a decision clearing the way for more rigorous policing of broadband providers and greater protections for Web users. The decision from a three-judge panel at the US Court of Appeals for the District of Columbia Circuit comes in a case about rules applying to a doctrine known as net neutrality, which prohibit broadband companies from blocking or slowing the delivery of Internet content to consumers. Those rules, created by the Federal Communications Commission in early 2015, started a huge legal battle as cable, telecom and wireless Internet providers sued to overturn regulations that they said went far beyond the FCC’s authority and would hurt their businesses.

Sound Investment
Twitter has invested about $70 million in Berlin-based music service SoundCloud, technology Website Re/code reported citing people familiar with the deal. Twitter confirmed the investment, but did not provide any financial details. “Earlier this year we made an investment in SoundCloud through Twitter Ventures to help support some of our efforts with creators,” Twitter chief executive Jack Dorsey said. Soundcloud, a platform that enables people to upload and share music and other audio files, also confirmed that Twitter had made the investment. Twitter’s investment was part of a funding round expected to be in the range of $100 million, which would value SoundCloud at about $700 million, the Re/code report said. The microblogging site has previously attempted to make a foray into music with the launch of Twitter Music in 2013, which was closed a year later. At the time, the company said that it would look for new ways to bring music-based content to the service.

Driving Growth
US retail sales rose strongly in May as Americans bought automobiles and a range of other goods, even as they paid more for gasoline, suggesting that economic growth was gaining steam despite a sharp slowdown in job creation. Other data hinted at a steady build-up of inflation pressures, with import prices recording their largest increase in just over four years in May as the drag from a strong dollar and lower oil prices fades. “As has been the case in the prior two years, the modest first-quarter disappointment in consumer spending now appears to be a short-lived soft patch,” said Michael Feroli, an economist at JP Morgan in New York. “This number also lends credence to the idea that the big miss on May payrolls may have been sending an overly pessimistic signal on growth.” The Commerce Department said retail sales increased 0.5 per cent last month after surging by an unrevised 1.3 per cent in April.

Bracing For Brexit
Central banks around the globe are preparing financial backstops to mitigate market turmoil in case Britons vote next week to leave the European Union, hoping to buffer the real economy from any short-term impact. Operating with so-called swap lines, the world’s biggest central banks stand ready to temporarily exchange currencies in potentially unlimited quantities if financial market disruption leaves banks and exporters short of foreign currency. Policymakers fear that a British vote on 23 June to leave the 28-nation EU, known as ‘Brexit’, could trigger an exodus of cash from Britain, paralysing currency markets.

The world’s biggest banks including Citi and Goldman Sachs will draft in senior traders to work through the night following Britain’s referendum on EU membership, set to be among the most volatile 24 hours for markets in a quarter of a century. A vote to leave the European Union on 23 June would spook investors by undermining post-World War-II attempts at European integration and placing a question mark over the future of the UK and its $2.9 trillion economy. Deutsche Bank, JP Morgan, HSBC, Barclays, and Lloyds are among those banks planning to have senior staff and traders working or on call in London.

Clean Up

China will take steps to remove regional trade barriers and industry monopolies, the cabinet said, in a bid to promote fair market competition and support the slowing economy. Efforts will be made to “break regional blockades and industry monopolies, remove market barriers, promote the free flow of goods and factors across the country”, the State Council said. These measures will help promote coordinated regional development and maintain steady economic growth, it said. China will also set up a system to deal with price distortions.

False Data
Mitsubishi Motors used improper fuel economy data for additional models that are no longer being sold and plans to report on the matter soon to Japan’s transport ministry, a local media reported. Mitsubishi Motors in April admitted to overstating the fuel economy on four of its mini-vehicles, including two produced for Nissan Motor, and has said its own investigations suggest that improper mileage calculations were used for nine other models. The newspaper said Mitsubishi Motors falsified data for three additional models. The Yomiuri newspaper said the automaker made theoretical calculations for the mileage of more than 10 additional models no longer on the market. Mitsubishi Motors declined to comment on the reports, saying that the investigation into the issue was ongoing.

Tall Claim
Abu Dhabi’s state-owned International Petroleum Investment has asked a London court to arbitrate in a dispute with Malaysian state fund 1MDB in which IPIC is claiming about $6.5 billion. The submission to the London Court of International Arbitration alleges that 1Malaysia Development Berhad and Malaysia’s finance ministry failed to perform their obligations under a debt restructuring agreement involving the companies last June.

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globescan internet twitter investment magazine 11 July 2016