Hurricane Harvey: National flood insurance renewal likely and emergency funding bill on tap

Hurricane Harvey may go down as one of the worst natural disasters to hit the United States, but it’s also likely to be a catalyst to push Congress to renew the National Flood Insurance Program (NFIP) and start preparing an emergency funding bill for

those affected by the storm, FOX Business has learned.

House Speaker Paul Ryan’s (R-Wis.) office assured to FOX Business that the program responsible for 4.9 million policyholders, including more than 590,000 in the state of Texas, will be reauthorized.
“Details are still being worked through, but the flood insurance program will be reauthorized,” AshLee Strong, spokeswoman for Ryan, said.

Strong went on to say they expect to create an emergency finance package for the victims of the hurricane, but noted they still need to wait until President Donald Trump’s administration makes that request.

“We will help those affected by this terrible disaster. The first step in that process is a formal request for resources from the administration,” Strong said.

The House Appropriations Committee, chaired by Rep. Rodney Frelinghuysen (R-N.J.) and the group that is expected to lead the effort in preparing an emergency funding bill, told FOX Business in a statement they’re ready to help but are also in a holding pattern until they get guidance from federal agencies.

“My Committee stands at the ready to provide any necessary additional funding for relief and recovery. We are awaiting requests from federal agencies who are on the ground, and will not hesitate to take quick action once an official request is sent,” Frelinghuysen said.

The insurance program was created 50 years ago after private insurers declared they would not risk catastrophic flood losses. According to the Federal Emergency Management Agency (FEMA), the organization has $1.7 billion to pay claims and only $5.8 billion left that it can borrow from the U.S. Treasury.

Beyond the issues over the limited amount of money they can borrow, NFIP is continuing to ramp up its debt. The program already owes the Treasury approximately $25 billion from previous weather disasters, including Hurricanes Sandy and Katrina. Sandy alone initially cost $8.4 billion, according to the FEMA website.

It’s unclear whether congressional lawmakers will manage to pass anything other than a temporary renewal to the program set to expire on Sept. 30 or if it will be part of a larger debt ceiling increase, which must be completed by Sept. 29 to avoid a government default.

The guarantee by Ryan’s representative will be welcome news for the victims of Hurricane Harvey, yet it could cause concerns for those who were expecting broad changes to the flood insurance program because of the limited time Congress has before they run into a litany of fiscal deadlines, including the renewal of the NFIP.

Members of Congress only have 12 working days after they return from their August recess to not only raise the debt ceiling and reauthorize the NFIP, but also determine how they’re going to fund the government and renew the Children’s Health Insurance Program.

Still, Texas representatives insist that the devastation from Hurricane Harvey should be incentive enough to move ahead with comprehensive reform to the insurance program.

The House Financial Services Committee Chairman, Rep. Jeb Hensarling (R-Texas), told The Wall Street Journal “a long-term reauthorization is within our means and capacity. We have an opportunity to open up this marketplace to competition and to make it more affordable.”

Banks urged to make ‘fundamental changes’ to overdraft charges

Reuters
Maintaining the status quo is “not an option” when it comes to the fees banks charge for unarranged overdrafts, the Financial Conduct Authority has said.

As it published its report into the regulations surrounding high-cost lending on Monday (31 July), Britain’s financial regulator called for banks to change the way they charge customers who take out an unplanned overdraft.

“The nature and extent of the problems that we have found with unarranged overdrafts mean that maintaining the status quo is not an option,” said Andrew Bailey, chief executive of the FCA.

“We are now working to resolve these issues while preserving the parts of the market that consumers find useful.”

Tthe Competition and Markets Authority (CMA) and consumer groups both criticised banks for charging exorbitant fees to customers taking out unplanned overdrafts.

Following its inquiry into the industry, the competition watchdog last year called for banks to cap their unarranged overdraft fees as part of an industry overhaul that could save UK customers a combined £1bn over five years.

The CMA urged banks to implement the changes by September this year and RBS and Natwest will introduce a £90 maximum fee for overdrafts on 24 July, while Lloyds will introduce a maximum fee of £95 which will then be scrapped in November.

HSBC is set to remove interest charges on most unplanned overdrafts but will still charge fees of between £5 and £80 per day, while Barclays abolished unplanned lending back in 2014.

Meanwhile, there was better news on the payday loans front, with new regulations, delivering “substantial benefits” to consumers. The regulator introduced a 0.8% per day price cap on payday loans, which will be kept in place for another three years before being reviewed.

The FCA report found that approximately 760,000 customers saved a combined £150m a year, while firms were increasingly unlikely to lend to customers who cannot afford to repay their loans.

As a result, debt problems linked to high-cost short-term credit are diminishing.

“High-cost credit products remain a key focus for us because of the risks they pose to potentially vulnerable customers,” Bailey added.

“We are pleased to see clear evidence of improvement in the payday lending market after a period when firms’ treatment of customers and their business models were often unacceptable.”

Mounting costs squeeze profitability in UK services sector

Demand in the UK services sector held up in the three months to August but rising costs led to profitability declining at the fastest pace in five years, a fresh survey has suggested.

The Confederation of British Industry’s (CBI) quarterly services sector survey revealed that total costs per employee in the business and professional services rose at the fastest pace in nine years, while those in the consumer services sector advanced at the quickest pace since 2004.

However, the volume of activity in the business and professional services sector – which includes accountancy, legal and marketing firms – expanded by the most since May last year.

A balance of +8% of firms in the business and professional services sector said they were optimistic about the future, although this was lower than the +14% score recorded in the previous quarter.

“It’s fair to say that the performance of the UK services sector is very much a mixed bag this summer,” said Anna Leach, head of economic intelligence at the CBI.

“While business volumes and numbers employed have risen, the impact of higher costs is harming the profitability of firms.”

Nearly a quarter consumer services companies – which include hotels, bars, restaurants, travel and leisure – said they were less confident about the future, with only 11% saying they were more optimistic.

The services sector accounts for about 80% of the UK economyReuters
Firms also said they were facing up to a skills shortage in the services sector, with the proportion of businesses saying they were held back by a lack of skilled professional or clerical staff at the highest level since the survey began in 1998.

The report adds to concerns that the UK economy is losing steam amid weakness in consumer spending and elevated uncertainty due to Brexit.

Data released last week by the Office for National Statistics showed that the UK’s gross domestic product expanded 0.3% in the June quarter, up from 0.2% growth in the previous three months.

“The availability of skills and labour is a real risk to plans for investment and growth,” Leach added.

“This underlines the degree of care which will need to go into crafting the UK’s future migration system to ensure that firms have access to the people needed to underpin growth and prosperity.”

Gold surges as US and North Korea ratchet up nuclear tensions

Gold futures extended declines as the dollar continued to strengthenReuters
The ongoing war of words between US President Donald Trump and North Korea’s Kim Jong Un, and their subsequent ratcheting up nuclear tensions, triggered a surge in the price of gold on Thursday (10 August), as safe-haven seeking investors flocked to buy the yellow metal.

At 3:15pm BST, the Comex gold futures contract for December delivery was up 1.09% or $13.90 to $1,293.20 an ounce, as the precious metal extended overnight gains, of nearly 2% stateside, with yet another rally in Asia and Europe.

Away from the futures market, London-based gold bullion traders also reported brisk buying by international investors.

At 3:25pm BST, spot gold was selling at $1,286.73 an ounce, up 0.74% or $9.43, holding firm near two-month highs for the physical market in both London and Dubai.

Josh Saul, chief executive officer of London-based The Pure Gold Company, which is among the bullion merchants reporting incremental trading, said: “We’ve seen a 64% increase in people purchasing physical gold for the first time in recent sessions citing the breakdown of international relations.

“Many fear that as a US ally, the UK is also susceptible to being dragged into an unnecessary and unwanted conflict. We see many of our new enquiries and clients using the opportunity to protect themselves against an uncertain future, especially given the unpredictability of both President Trump and Kim Jong-Un.”

Other precious metals are also registered intraday upticks. At 2:19pm BST, the Comex September silver futures contract was up 2.06% or 35 cents to $17.21 an ounce, while spot platinum rose 0.80% or $7.81 to $983.26 an ounce.

Fawad Razaqzada, technical analyst at FOREX.com, said geopolitics will continue to dominate investor sentiment over the short-term.

“Gold and silver are higher thanks mainly to their status as safe-haven commodities. It would be ideal for the precious metals if the dollar were to weaken again now, and that could happen courtesy if US economic data is weaker.

“Both precious metals are looking increasingly bullish from a technical standpoint, but gold has drifted higher of late, breaking many resistance levels in the process. The big buy stop orders will be resting above $1,295; I therefore think that gold will probe the resting liquidity above $1,295 in the coming days.”

Pound plummets against major currencies on UK inflation data

iStock
The pound headed lower against major currency crosses on Tuesday (15 August) after stable inflation data for July reduced the likelihood of an interest rate by the Bank of England over the short-term.

At 4:33pm BST, the pound was down 0.83% versus the dollar at $1.2857, well below 10-month highs versus the greenback seen at the start of the month.

It was also exchanging 0.35% lower versus the euro at €1.0966, accompanied by declines of 0.72%, 0.48% and 0.10% versus the Swiss franc, Canadian dollar and Japanese yen respectively.

Earlier in the session, the Office for National Statistics (ONS) said inflation as measured by the Consumer Price Index (CPI) rose 2.6% year-on-year last month, unchanged from the rate of growth recorded in June and below analysts’ expectations for a 2.7% reading.

Ben Brettell, senior economist at Hargreaves Lansdown said the unexpected fall to 2.6% raised hopes that UK inflation had peaked, as the Brexit-induced weakness in the pound started to fade.

“Economists had predicted a slight uptick to 2.7%, but in the event CPI inflation held steady at 2.6%, with falling fuel prices counterbalanced by higher prices for clothes, utilities and food. It now looks quite possible inflation has peaked, and will fall back further incoming months.”

Andrew Sentance, former UK central banker and senior economic adviser at PwC, said the jury is still out, however, on whether UK inflation could still rise higher later this year to around 3%.

“The Bank of England may take comfort from the fact that inflation is not continuing to rise over the summer months. But there is still a strong case for starting to edge UK interest rates upwards from their exceptionally low level, following the lead taken by the United States Federal Reserve.”

From a technical analysis standpoint, commentators at FOREX.com said the GBP/USD’s struggle and the subsequent failure to hold above the psychological $1.30 handle is bearish.

“It faces resistance in the $1.2940-1.2955 area which as previously support. A break above this region on a daily closing basis would be bullish again, ideally if the last high at $1.3030 is also taken out. Unless that happens, we may see further weakness going forward,” they wrote in a note to clients.

Ten years on from the global financial crisis how goes it for the UK and the pound?

The overall picture is of some UK growth in output, but that’s more down to increased employment than any productivity gains.iStock
It’s been 10 years since the global financial crisis first reared its ugly head in the form of tightening liquidity conditions and reports of losses in US mortgage markets. Over that time, the UK’s public sector net debt has increased almost four-fold, the Bank of England’s base lending rate has fallen from 5.75% to 0.25%, and 10-year gilt yields from just above 5% to just above 1%.

Real GDP has increased by 13%, which looks respectable enough until you note a near 10% increase in employment. And while wages have increased by 22% over the last decade, consumer prices have increased by 26%.

The overall picture is of some growth in output, but more due to increased employment than to any productivity gains, which have been dismal.

The weakness in productivity is one factor holding down real wages, which have fallen slightly over the last decade.

It’s not the only one of course and weak real wage growth is a universal story among developed economies. But UK households have been particularly afflicted by the impact of all this on the pound, and from there on inflation.

The value of the pound has fallen by 36% against the dollar, and by 25% against the euro. That’s been a factor driving import and consumer price inflation, but unfortunately, it hasn’t really done anything for the UK’s balance of payments.

Exports and Imports have both grown by 55% in 10 years, which is respectable enough but the net result is that the trade deficit, £38.5bn in the year to June 2007, was £37.4bn in the year to June 2017. The current account balance performed worse – widening from £37.5bn in 2007 to £84.5bn in 2016.

General disgruntlement at the failure of improvement in living standards has had political implications, and is a factor in the vote to leave the EU. That, in turn, has created huge uncertainty over the UK’s medium-term economic outlook, while the US economy continues to grow at a respectable pace, and the European economic outlook in general, is improving.

Beyond Brexit

The result is that although the UK’s economic performance has been better since the referendum vote than many had feared, the country has still fallen sharply down global rankings.

General disgruntlement at the failure of improvement in UK living standards has had severe political implications. Matt Cardy/ Getty Images
If you measure your currency performance solely in terms of the dollar/sterling exchange rate, then 2017 hasn’t been too bad – the pound is up by 5% against the dollar. However, that’s mostly because the dollar has been the weakest of all the major currencies.

The only other majors that have underperformed the sterling are the New Zealand dollar, the Brazilian real, and the South African rand. At the other extreme, the euro, as well as Danish and Swedish kroner, have gained about 6% against sterling. It’s no surprise that given the big falls against near-neighbours, the pound’s trade-weighted value is slightly (2%) weaker than it was at the end of 2016.

Sterling vs exports

An uncertain economic outlook, and the contrast with the reduced political uncertainty in the euro area, is going to go on weighing on sterling. It’s only defence is that the level, just 3% above the lows of the last decade (and 10% below the average), is pretty extreme. That probably means that it can’t fall much further, even if the economic outlook argues against much of a bounce.

Hardly a thrilling prospect, and the failure of the fall in 2007-2009 to help boost the UK’s export performance argues against getting hopes up too much regarding possible benefits for exporters from the currency’s weakness.

Several years with low rates, a cheap currency, persistent current account and budget deficits and mediocre economic growth loom ahead for the UK.
– Kit Juckes
If a near 30% fall in sterling’s value in 2007-08 didn’t help exports much, why would a 20% fall since mid-2015 have a huge impact; all the more so given the uncertainty about the UK’s post-Brexit trading relationships?

Several years with low rates, a cheap currency, persistent current account and budget deficits and mediocre economic growth loom ahead for the UK. Meanwhile, global markets seem set to be driven by the continued weakness of both productivity and wage inflation in developed economies, which anchor interest rates and bond yields.

And in currencies, anchoring US interest rates means that any moves on the part of the European Central bank are likely to drive the euro higher. I still can’t see how the euro area can hope to enjoy both an undervalued currency and a large current account surplus, unless monetary policy is devoted solely, or at least largely, to keeping the euro down.

The Big Mac index suggests EUR/USD fair value is 1.25, while the more sophisticated OECD measure of purchasing power parity is at 1.33. EUR/USD is likely to rise to a level between 1.25 and 133 in the next couple of years. In the process, the pound will lose ground to the Euro (GBP/EUR falling to 1.05 or so) while gaining a little against the dollar (towards 1.35).

Bearish IEA report punctures nascent oil market rally

Oil futures slide into losses following Bearish IEA reportReuters
Oil futures, riding high in recent sessions, fell to their lowest level in more than a week on Friday (11 August), after the International Energy Agency (IEA) said global inventory rebalancing would be slow despite strong demand growth.

The energy think-tank largely blamed slack compliance by Opec and non-Opec producers with the production cuts they outlined in May for its bearish outlook. In response, prices retreated almost by 1% intraday from the two-and-half month overnight highs.

At 3:14pm BST, the Brent front month futures contract was down 0.77% or 40 cents to $51.50 per barrel, while the West Texas Intermediate was down 0.93% or 45 cents to $48.14 per barrel.

In its monthly assessment report of the market, the IEA wrote: “There would be more confidence that re-balancing is here to stay if some producers party to the output agreements were not, just as they are gaining the upper hand, showing signs of weakening their resolve.”

The think-tank noted that Opec’s hitherto impressive compliance with the cuts had fallen to 75% in July, the lowest since the drive began in January.

The IEA specifically cited weaker compliance by Algeria, Iraq and the United Arab Emirates. Additionally, Libya, an Opec member currently exempt from the output cuts, saw a sharp increase in its output.

Despite the recent price uptick, many in the market remained unmoved by the Opec technical meeting earlier in the week, according to FXTM research analyst Lukman Otunuga.

“Scepticism is increasing over the cartel’s plans to improve compliance after Opec’s output hit a 2017 record high and exports marked a record. While Opec itself remains optimistic that the current supply cut agreement may eventually rebalance the saturated markets, the lagging compliance from Iraq and resurgent production in Libya are threatening to undermine efforts made by the rest of the group to prop up oil prices.

“With Ecuador already pulling out of the Opec agreement due to financial pressures, the clock is ticking and it will take more than pledges for the cartel to support oil prices moving forward.”

Ireland’s ESB poised to enter UK energy utility market

Labour says that it will be “one of the first bills” that they introduceReuters
Irish utility ESB is preparing to enter the UK energy supply market that would see it take on some serious competition.

Nearly 50 suppliers offer electricity and gas via a plethora of tariffs to household and commercial users. However, it’s the ‘Big Six’ led by Centrica’s British Gas that dominate the market. The other five include SSE, Iberdrola’s Scottish Power, EDF Energy, E.ON and Innogy’s npower.

The state-owned ESB, which currently supplies energy to 2.3 million customers in Ireland, would be following a string of foreign energy companies into the UK retail market. Recent entrants include France’s Engie and Sweden’s Vattenfall.

Without elaborating further, an ESB spokesperson said on Friday (11 August): “We are currently in the process of fulfilling all regulatory requirements in advance of entering the GB energy market later in 2017.”

The announcement comes after the UK regulator launched a review this month into how best to reduce long-term energy bills, and recently ordered energy suppliers to reduce the maximum tariffs for customers.

Meanwhile, Energy UK, the trade association for the industry, revealed the number of customers switching electricity suppliers has risen 14% this year, with over 3 million customers having already switched their electricity supplier by July-end.

It added that one in five had signed up to small or medium sized suppliers. In July alone, 385,000 customers switched their suppliers; a 16% increase on July 2016.

Lawrence Slade, chief executive of Energy UK, said: “There are now over 50 suppliers to choose from, which is driving innovation, improvements to customer service and providing an incentive to keep prices competitive as suppliers fight to keep and attract customers.”

Indian mining behemoth Adani cleared in financial fraud investigation

Adani Group has denied allegations of overvaluing the power equipment used in its projects in IndiaGetty Images
Indian mining giant Adani Group has been cleared of illegally siphoning money to offshore tax havens by the country’s customs authority.

Indian customs investigators had raised allegations in 2014 that Adani was using a front company in Dubai and other intermediaries to overvalue machinery and equipment imported for electricity projects in India.

The inflated amounts paid for the equipment were alleged to have been routed to a holding company in Mauritius managed by Vinod Shantilal Adani, the older brother of Adani Group chief executive Gautam Adani.

However, an official at India’s Directorate of Revenue Intelligence (DRI) appointed to adjudicate the case struck down the claims this week, the Indian Express newspaper reported.

KVS Singh said that while the Adani subsidiaries operating power projects in the states of Rajasthan and Maharashtra were connected to the Dubai front company EIF through Vinod Adani, he had come to the conclusion that the relationship had not affected the transaction value of the imported equipment.

“I find that the allegation that the impugned goods were overvalued does not hold water,” he said in his ruling on 22 August.

Sources told the Indian Express that the ruling was a big blow to a separate DRI investigation against the Adani Group and other Indian firms that are looking into claims they overvalued electricity equipment imports through a similar modus operandi.

The Adani Group has denied the allegations, with the company saying in a statement to the Guardian that it would continue to cooperate with the DRI’s investigation.

“It is a standard procedure for the group to follow international competitive bidding route for major capital expenditures to ensure transparency and competitiveness in the process,” it said.

“All our transactions are always conducted within the framework of extant regulatory guidelines and provisions.

“The fact that our projects have incurred the lowest cost across central, state and private utility players has gone to establish the robustness of the processes followed by our group.”

Meanwhile, a court in Brisbane has dismissed the Australian Conservation Foundation’s appeal against Adani’s controversial Carmichael coal mine in Queensland on 25 August.

UK mortgage approvals cap 5-year high in July

iStock
UK mortgage approvals rose to a five-month high in July, according to industry figures published on Thursday (24 August).

UK Finance, the successor industry lobby group to the British Bankers Association, said 41,587 mortgages for house purchases were approved by banks last month, up from 40,385 in June, and around 9% above July 2016; the month after the country voted to exit the European Union.

The figures provide a precursor to more comprehensive data, including figures from building societies, due to be published by the Bank of England on 30 August.

Eric Leenders, head of personal at UK Finance, noted: “Steady levels of mortgage activity seen through the first half of the year continued into July.

“First time buyer numbers continue to be strong, helped in part by government schemes. But that has been offset by home movers, where a shortage of homes on the market is limiting their activity.”

UK Finance also said credit card lending rose by 5.3% percent year-on-year, down from 5.5% in June, and the weakest increase since March.

Away from lending, figures also indicated that growth in personal bank deposits hit their lowest rate since June 2009, up 2.3% in the year to July, down from 2.5% in June.