BOJ seeks to make its ammunition last longer as options dwindle

TOKYO (Reuters) – Japan’s central bank pledged to keep its massive stimulus in place but made tweaks to reduce adverse effects of its policies on markets and commercial banks, reflecting its view it would take longer for inflation to hit its target.

At a two-day rate review that ended on Tuesday, the Bank of Japan kept its interest rate targets steady but for the first time adopted a forward guidance on future policy, saying it will keep rates “very low” for an “extended period of time.”

As its huge purchases dry up market liquidity and efforts to cap bond yields face difficulty, the central bank also said it would allow yields to rise more naturally and could slow asset buying if market conditions allowed.

Its governor, Haruhiko Kuroda, said the changes in its framework were partly to stamp out speculation that the central bank was about to exit its super loose monetary policy or raise rates.

The decision highlights the dearth of ammunition the BOJ has left to fire up stubbornly-weak inflation, even as other major central banks emerge from crisis-mode policies and stock up policy tools to fight another recession.

“The BOJ did all it can do now. The BOJ has managed to create a foothold to make its yield curve control policy more flexible without lifting the yen,” said Takehiro Noguchi, senior economist at Mizuho Research Institute.

The BOJ maintained its short-term interest rate target at minus 0.1 percent and a pledge to guide 10-year government bond yields around zero percent, as expected, by a 7-2 vote.

But in a change to its policy, it said it would allow long-term rates to fluctuate depending on economic and price developments, and conduct its asset purchases more flexibly.

Kuroda said the central bank will now tolerate 10-year bond yield rises of up to around 0.20 percent, up from around 0.10 percent previously, as keeping yields in too narrow a band would shrink bond trading.

He also said the BOJ’s annual purchases of risky assets could fluctuate, signaling that buying of exchange-traded funds (ETF) may fall below its pledge to buy roughly 6 trillion yen ($53.78 billion) per year.

“We took steps so we can continue our powerful monetary easing longer, because it is taking more time than expected to achieve our price target. I think that with these steps, we can continue with our massive stimulus program,” Kuroda said.

RATE HIKE TOOL

The yen weakened against the dollar and government bond yields fell, as markets took the BOJ’s moves as reaffirming its commitment to keep monetary policy ultra-loose.

In the days leading up to the meeting, speculation that the BOJ could raise the prospect of an interest rate hike had unsettled financial markets and pushed global bond yields higher.

French and German government bond yields dropped on Tuesday after the BOJ’s pledge to keep rates low, which could drive Japanese investors to continue investing in the euro zone bond market.

The BOJ has failed to break Japan’s entrenched deflationary mindset despite years of heavy money printing, with persistently soft inflation depleting its ammunition and global trade woes clouding the outlook for an export-reliant economy.

In a quarterly review of its projections also released on Tuesday, the BOJ trimmed its price forecasts and conceded inflation could fall short of its target for three more years.

But there is uncertainty over how long it can sustain the current ultra-easy policy given the strain near-zero rates are inflicting on Japanese banks’ earnings and the bond market.

The BOJ had been forced to repeatedly step into the market to cap 10-year yields around 0.11 percent, cementing investors’ perception that was the bank’s line in the sand.

Its huge asset purchases have also drawn criticism, even from some BOJ policymakers, as distorting markets.

The challenge for the BOJ was to create some space to allow for future adjustments to what was becoming an unsustainable stimulus program, without causing an unwelcome yen spike by fueling speculation of an early exit.

Its policy moves on Tuesday to some extent make this possible by adding forward guidance communication in its regular policy statements that pledges to keep rates low, taking into account uncertainties on the economy including the effect of a scheduled sales tax hike next October.

In the past, the BOJ gave no guidance on the future path of its interest rates, leaving markets to their own interpretations.

“There was some speculation in the market that the BOJ will seek an early exit from stimulus, or raise rates soon. With this guidance, we can dispel such speculation,” Kuroda said.

But Kuroda did not elaborate on whether the BOJ would keep current yield targets intact at least until the tax hike.

While Tuesday’s measures showed the BOJ was in no rush to raise rates, they could make a shift toward policy normalization less disruptive, some analysts said.

“It is a very mild policy change by the BOJ but its policy vector is heading towards tightening. The BOJ’s message was to let long-term yields go higher,” said Hiroaki Mutou, chief economist at Tokai Tokyo Research Institute.

FILE PHOTO: A Japanese flag flutters on the Bank of Japan building in Tokyo, Japan, March 15, 2016. REUTERS/Toru Hanai/File Photo

“I think the BOJ was successful in tweaking its policy scheme which did not greatly impact markets but introduced a tool, forward guidance for policy rates, for future tightening.”

Additional reporting by Tetsushi Kajimoto and Thomas Wilson; Editing by Sam Holmes

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Air India seeks additional equity from government to pay vendors: source

(Reuters) – State-owned carrier Air India has sought 21.21 billion rupees ($309 million) of additional equity from the government for the fiscal year 2018-19 to make pending payments to its vendors, a source at the airline told Reuters on Monday.

The Air India logo is seen on the facade of its office building in Mumbai, India, July 7, 2017. Picture taken July 7, 2017. REUTERS/Danish Siddiqui

Air India owes about 18 billion rupees to its vendors, including lessors and banks that have demanded payment from the beleaguered airline, after the government’s unsuccessful efforts to find a buyer for its 76 percent stake.

The airline expects to receive the additional equity within the next 7 to 10 days after which it will be able to clear all dues, the source said, adding that this is above the 6.5 billion rupees it has already received for the year.

India last month shelved a plan to sell a majority stake in Air India due to lack of interest from bidders, in the latest setback in its ambitious efforts to rescue the ailing airline that has survived for years using taxpayer funds.

The logo of Air India is pictured on the tail of the passenger aircraft on the tarmac in Colomiers near Toulouse, France, July 10, 2018. REUTERS/Regis Duvignau

The government will continue to support the loss-making airline’s financial requirements while it works on alternatives, Junior Civil Aviation Minister Jayant Sinha had said, without giving a specific timeline for a new plan.

Three banks and two aircraft leasing firms have served default notices on Air India over the last few weeks, the Business Standard newspaper reported earlier on Monday, raising concerns about the state-owned carrier’s finances and credit-worthiness.

San Francisco, United States-based Wells Fargo Trust Services and UAE’s state-owned Dubai Aerospace Enterprise (DAE) have sent letters of demand for pending rental payments, the newspaper said, citing sources.

A DAE spokesman told Reuters that they were not owed $10 million by Alliance Air, and that they had not issued a notice of default to Alliance.

Alliance Air is a unit of Air India that operates regional flights to smaller towns and cities in India.

Wells Fargo could not be reached outside usual U.S. business hours.

Three lenders from a 22-bank consortium have also written to Air India raising concerns that the company is turning into a non-performing asset, Business Standard said. The three banks are Standard Chartered Bank, Dena Bank (DENA.NS) and Bank of India Ltd (BOI.NS).

The airline has received a notice from banks for non-payment of dues that is being looked into by the government, the source confirmed.

A Standard Chartered spokesman in India declined to comment.

Bank of India and Dena Bank did not immediately respond to requests for comment.

Reporting by Abinaya Vijayaraghavan in Bengaluru and Aditi Shah in Delhi; Additional reporting by Alexander Cornwell in Dubai; Editing by Subhranshu Sahu, Sherry Jacob-Phillips and Sunil Nair

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Exclusive: BMW to raise prices of two U.S.-made SUV models in China

BEIJING (Reuters) – German carmaker BMW (BMWG.DE) said it will raise the prices of two U.S.-made crossover sport-utility vehicles in China to cope with the additional cost of tariffs on U.S. car imports into the world’s biggest auto market.

FILE PHOTO: The BMW logo is seen on a vehicle at the New York Auto Show in the Manhattan borough of New York City, New York, U.S., March 29, 2018. REUTERS/Shannon Stapleton/File Photo

In a move due to take effect on Monday, BMW said in a statement to Reuters over the weekend that it will increase maker-suggested retail prices of the popular, relatively high-margin X5 and X6 SUV models by 4 percent to 7 percent.

The rates of increase suggest that BMW is willing to absorb much of the higher costs stemming from bringing the SUVs to China from its factory in South Carolina, underscoring the fierce competition among luxury car brands in China.

BMW’s move comes after China imposed new tariffs earlier this month on about $34 billion of U.S. imports, from soybeans and cars to lobsters, as part of a widening trade row.

Beijing, which this year cut tariffs on all automobiles imported into China, slapped an additional 25 percent levy on U.S.-made cars as of July 6. As a result, China now levies a 40 percent import duty on all cars imported from the United States.

“BMW stands for free (trade) but can’t stand still without taking actions to respond to the market changes,” a BMW spokeswoman said in an email message to Reuters.

BMW imports X4, X5 and X6 crossover SUV models from the United States for sale in China where demand for SUVs has been booming. Last year, the German automaker shipped more than 100,000 vehicles from the United States to China.

The company made no reference to pricing of its X4 model.

BMW’s decision to absorb much of the impact of the higher tariffs echoes an earlier move by U.S. carmaker Ford Motor Co (F.N), which said it would not increase its prices for now in an effort to sustain its business momentum.

China-based car dealers told Reuters that German rival Mercedes Benz, operated by Daimler AG (DAIGn.DE), moderately raised the price in mid-July of its GLE, a sporty midsize SUV produced in the state of Alabama, in China.

A Daimler spokeswoman referred Reuters to comments made by the company last week.

Daimler’s chief executive Dieter Zetsche said last Thursday the car maker was looking at ways to mitigate the impact of the trade war. This would include a review of whether to shift some U.S. production to China.

Daimler also said last week its 2018 pre-tax profits would fall from last year because the new Chinese import tariffs would hurt sales of Mercedes-Benz SUVs.

Reporting By Norihiko Shirouzu; editing by Richard Pullin

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Economy, dollar, trade key to U.S. stocks’ global edge

NEW YORK (Reuters) – The ability of the U.S. stock market to keep an edge this year over equities elsewhere in the world hinges on the United States maintaining its economic and earnings growth advantage, the strength of the dollar and how global trade tensions resolve, investors said.

People walk by a Wall Street sign close to the New York Stock Exchange (NYSE) in New York, U.S., April 2, 2018. REUTERS/Shannon Stapleton

Spurred by fiscal policy benefits including a corporate tax cut, the U.S. economy’s standout momentum relative to other regions has underpinned Wall Street’s advantage this year, investors said.

“The outperformance of U.S. stocks reflects not just earnings, but expectations about U.S. economic growth versus other regions,” said Kristina Hooper, chief global market strategist at Invesco.

“Conventional investor wisdom is that the U.S. is going to continue to outperform other economies this year and hence investors should move more of their exposure to the U.S.,” Hooper said.

A clearer read of the U.S. economy comes next week with data such as the government’s monthly employment report on Friday and quarterly results from more than 140 S&P 500 companies, including Apple (AAPL.O).

According to an International Monetary Fund report this month, the United States is projected to post economic growth of 2.9 percent this year, up from 2.3 percent in 2017, while European advanced economies, and Japan and China, have slower growth than a year ago. The U.S. economy grew 4.1 percent in the second quarter, data on Friday showed, its fastest pace in nearly four years.

While returns for the U.S. benchmark S&P 500 index trail last year’s – they are up 6 percent so far in 2018 against a 10.5 percent gain at a similar point in 2017 – U.S. equities are easily beating indexes covering Europe, Japan and emerging markets after lagging or just keeping pace for all of last year.

NEAR ALL-TIME PEAK

After rebounding from a 10-percent correction earlier this year, the S&P 500 is close to an all-time high and on track for its best year relative to stocks in the rest of the world since 2014.

“Returns themselves have been lower than many investors have come to expect. But on a relative basis, the U.S. continues to be the market leader,” said Michael Arone, chief investment strategist at State Street Global Advisors.

U.S. stocks separated from equities elsewhere in particular during the second quarter, with investors citing a divergence in growth expectations.

Citi Research’s gauge on U.S. economic data surprises .CESIUSD was solidly positive in April and May, when its barometer for euro zone surprises .CESIEUR was sharply negative.

“There was a change in expectation from synchronized global growth to U.S. growth being better than the rest of the world really due to the fiscal tailwinds,” said Sunitha Thomas, regional portfolio manager for Northern Trust Wealth Management.

The dollar .DXY surged against other major currencies starting in the second quarter, and investors said the greenback’s path will be an important factor determining relative equity performance.

The dollar’s gains aided U.S. equity fund returns against international funds, which required a costly translation into the greenback, investors said.

The dollar’s strength weighed on emerging markets, where debt costs have increased and weaker currencies sparked an investor retreat. Emerging market stocks overall .MSCIEF have particularly lagged this year, declining 6 percent.

“All of these fundamental factors in emerging markets were triggered by the stronger U.S. dollar that were not good for economic momentum in those countries,” Thomas said.

ROSY EARNINGS

S&P 500 profits are expected to surge 22.7 percent this year against an 8.5 percent rise for companies in Europe’s Stoxx , according to Thomson Reuters I/B/E/S, but the benefits from a cut in corporate tax rate to 21 percent from 35 percent will wane next year.

Expectations for economic growth in Europe and Asia appear more realistic, after being too high before, said Jeffrey Kleintop, chief global investment strategist at Charles Schwab.

“It really takes some very strong U.S. economic momentum, maybe even better than what’s expected today, to see a repeat of what we saw in the first half,” Kleintop said, adding it wouldn’t surprise him if there wasn’t a major performance difference for the rest of the year.

Any resolution of tensions between the United States and its trade partners resulting in more free trade stands to benefit stocks globally. But trade disputes have weighed more on non-U.S. markets, investors said, so those could be poised for a greater rebound.

“If trade simmers down, that’s disproportionately positive for international” markets, said Alec Young, managing director of global markets research at FTSE Russell.

Reporting by Lewis Krauskopf; Editing by Alden Bentley and Bernadette Baum

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U.S. regulator stands by decision to block Winklevoss bitcoin ETF

NEW YORK/WASHINGTON (Reuters) – The U.S. Securities and Exchange Commission on Thursday stood by a decision blocking an exchange-traded fund that would have tracked bitcoin, citing concerns about market manipulation.

Brothers Cameron (L) and Tyler Winklevoss talk to each other as they attend a New York State Department of Financial Services (DFS) virtual currency hearing in the Manhattan borough of New York January 28, 2014. REUTERS/Lucas Jackson

The securities regulator found “unpersuasive” arguments that the bitcoin ETF proposed by Cameron and Tyler Winklevoss, the twin brothers who founded crypto exchange Gemini Trust Co LLC, would be sufficiently protected from manipulation, it said in a 92-page analysis bit.ly/2K3GoWG posted on its website.

“Regulated bitcoin-related markets are in the early stages of their development,” the SEC said, saying that it “cannot…conclude that bitcoin markets are uniquely resistant to manipulation.”

But the SEC did not completely shut the door to such products coming to market once the bitcoin market has matured, offering some hope for at least five other bitcoin ETF proposals that are still pending before the regulator.

Bitcoin turned negative after the SEC’s ruling, and last traded down 2.9 percent.

The virtual currency can be used to move money around the world quickly and with relative anonymity, without the need for a central authority, such as a bank or government. A fund holding the currency could attract more investors and push its price higher.

The SEC said there was not enough evidence that efforts to thwart manipulation of the ETF’s price or that of the underlying bitcoin market would be successful.

The SEC had blocked the Winklevoss ETF from coming to market in March 2017, but then faced an appeal from exchange operator CBOE’s Bats exchange, which applied to list the ETF.

The CBOE said it was reviewing both the SEC’s notice and Commissioner Hester Peirce’s dissent.

“Investors are better served by products traded on a regulated securities market and protected by robust securities laws and we will continue to work with the SEC and ETF issuers to construct a fully regulated product,” said Chris Concannon, chief operating officer of CBOE Global Markets.

The parties can appeal the SEC’s decision in federal court.

Gemini did not immediately respond to requests for comment.

The Winklevoss twins are best known for their feud with Facebook Inc founder Mark Zuckerberg over whether he stole the idea for what became the world’s most popular social networking website from them. The former Olympic rowers ultimately settled their legal dispute, which was dramatized in the 2010 film “The Social Network.”

The SEC’s decision to block the ETF was voted for 3-1 by its sitting commissioners, with Peirce voting against. In a statement, Peirce said she believed the product met the legal standard.

“More institutional participation would ameliorate many of the Commission’s concerns with the bitcoin market that underlie its disapproval order,” she said, adding that the ruling “sends a strong signal that innovation is unwelcome in our markets.”

Reporting by Trevor Hunnicutt in New York and Michelle Price in Washington; additional reporting by Anna Irrera in New York; editing by Phil Berlowitz and Leslie Adler

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World stocks hit four-month high on EU-U.S. trade breakthrough hopes

LONDON (Reuters) – European stocks opened much higher on Thursday, pushing world stocks to new four-month highs after the European Union and the United States agreed to negotiate on trade, easing some of the fears of a transatlantic trade war.

FILE PHOTO: The London Stock Exchange Group offices are seen in the City of London, Britain, December 29, 2017. REUTERS/Toby Melville/File Photo

Concerns over the slowing pace of world economic growth and some lackluster company earnings reports capped some of equity gains, however, as did lingering fears that Washington’s trade tensions with China could escalate further.

In what the EU chief called a “major concession,” U.S. President Donald Trump agreed on Wednesday to refrain from imposing car tariffs while the two sides launch negotiations to cut other trade barriers.

There were gains across the board for European stocks on Thursday morning, led by the continent’s auto sector, which was up 2 percent at one point German’s export-reliant and auto-heavy index rose 1.4 percent

A pan-European stock index rose half a percent while the MSCI world equity index, which tracks shares in 47 countries, hit its highest since March 16 on the news.

“The lifting of the threat of tariffs on the auto sector in particular is a major development. We’ve not seen a lot of actual measures implemented but it should lift the confidence of manufacturers,” said RBC European economist Cathal Kennedy.

“The feedthrough should come through in the manufacturing sector and confidence indicators in the coming months.”

The equity gains pushed up government bond yields in the U.S. and Europe, with Germany’s 10-year yield, the benchmark for the euro zone, coming close to a one-month high at 0.42 percent.

There were clouds on the horizon, however.

Asian stocks were held back by weakness in China, where the Shanghai Composite index fell 0.7 percent and blue-chip shares lost 1.1 percent. This capped gains for MSCI’s broadest index of Asia-Pacific shares outside Japan to just 0.1 percent.

While the transatlantic mood was improving, “this deal, along with the breakdown of a large M&A deal, leave investors fearing that the trade war has just turned even more so on China,” Citi analysts told clients.

They were referring to the likelihood that Qualcomm Inc would drop its $44 billion bid for NXP Semiconductors NXPI.O after a deadline for securing Chinese regulatory approval passed.

Economic growth worries are also mounting — economists polled by Reuters said global activity had peaked, with trade protectionism seen having a significant downward impact. Thursday’s South Korean data showing slowing growth and exports reinforced that picture.

Another poll indicated U.S. second quarter growth — with data due on Friday — also would mark the peak.

Trade and growth worries were already taking a toll on some companies’ bottom lines.

U.S. automakers General Motors, Ford Motor and Fiat Chrysler Automobiles have cut profit forecasts, while Germany’s Daimler blamed U.S.-China tariffs for a 30 percent drop in second-quarter profit.

A warning of slowing growth from Facebook Inc, which saw the company’s stock fall as much as 24 percent in after-hours trading on Wednesday, highlighted risks for investors and businesses in the current earnings season.

That is likely to weigh on Wall Street at open, with S&P500 futures down 0.2 percent

Focus will now turn back to central bank policy and the softer U.S.-EU tone should help the European Central Bank stick with its plan to gradually withdraw stimulus when it meets later on Thursday.

The euro, having strengthened on Wednesday on the news, held on to its gains against the dollar and was at $1.1731 while the dollar was down 0.20 percent against a basket of currencies.

The yen fell 0.3 percent against the dollar but investors will carefully watch the Bank of Japan’s two-day policy review on July 30-31 after this week’s brief jump in yields and the Japanese currency on reports authorities were debating paring back some stimulus.

The bank is said to be considering changing the composition of exchange-traded funds it buys as part of its stimulus program.

Brent crude meanwhile was up over a percent to hit a 10-day high of $74.68 per barrel Brent crude led oil prices higher, extending gains into a third day after Saudi Arabia suspended crude shipments through a strategic Red Sea shipping lane.

For Reuters Live Markets blog on European and UK stock markets open a news window on Reuters Eikon by pressing F9 and type in ‘Live Markets’ in the search bar

Reporting by Abhinav Ramnarayan, Additional reporting by Andrew Galbraith in SHANGHAI; Editing by Hugh Lawson

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Deutsche Bank second-quarter net profit drops as new CEO overhauls lender

FRANKFURT (Reuters) – Deutsche Bank (DBKGn.DE) on Wednesday posted a 14 percent drop in net profit in the second quarter from a year earlier, as Germany’s largest bank restructures under new leadership.

FILE PHOTO: The headquarters of Deutsche Bank is pictured in Frankfurt, Germany, March 19, 2018. REUTERS/Ralph Orlowski/File Photo

Deutsche last week already flagged that net profit would be more than double analysts’ forecasts in a rare piece of good news for the bank, which is cutting costs to revive profitability.

Net profit in the second quarter was 401 million euros ($468 million), down from 466 million euros last year. Revenues were flat at 6.6 billion euros, halting a steep decline from previous years.

The better-than-expected profit and revenue are a positive sign for new Chief Executive Christian Sewing, who took over in April and has embarked on plans to cut more than 7,000 jobs in an overhaul of the bank.

Deutsche Bank, trying to bounce back from three consecutive years of losses, has had a run of negative headlines, including an abrupt management reshuffle, a downgrade by Standard & Poor’s and failing the U.S. Federal Reserve’s stress test.

“We’re making important changes to our core businesses as promised, we’re headed in the right direction on costs, and our balance sheet quality is strong,” Sewing said on Wednesday.

At the investment bank, revenue was partly helped by a one-time gain of 57 million euros from a disposal in the quarter.

Revenue at its cash-cow bond-trading division dropped by 17 percent despite more volatile markets.

By contrast, some big U.S. banks posted sharp increases in profit as volatility caused by escalating trade tensions and central bank policy changes stirred a rise in trading volumes across Wall Street.

Goldman Sachs Group Inc (GS.N) reported a 44 percent rise in second-quarter profit on Tuesday, driven by strength in its investment banking and fixed income trading businesses.

Reporting by Tom Sims; Editing by Victoria Bryan, Maria Sheahan and Sunil Nair

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Global airfares, hotel rates to rise in 2019: industry forecast

SINGAPORE (Reuters) – A strong global economy and rising oil prices are expected to push up the cost of air travel in 2019, with fares seen rising 2.6 percent and hotel rates up 3.7 percent, although there are downside risks from a trade war, according to an industry forecast.

A passenger waiting for his flight to depart watches a plane take off from the domestic terminal at Ngurah Rai International Airport, Kuta, Bali, Indonesia December 4, 2017. REUTERS/Darren Whiteside/File Photo

In some countries, including India, New Zealand, Norway, Germany and Chile, airfares are expected to rise by more than 7 percent, said the annual business travel forecast from Carlson Wagonlit Travel (CWT) and the Global Business Travel Association (GBTA) released on Tuesday.

“Speaking for the Asia-Pacific region, we are coming off a period three to four years ago where there was a lot of capacity in the system (and) fares were down pretty significantly, potentially lower than was sustainable,” said Michael Valkevich, CWT’s vice president for global sales & program management, Asia Pacific.

“So I think we are getting to a bit more of a renormalization of sustainable fares.”

The International Air Transport Association in June forecast passenger yields, a proxy for airfares, would rise by 3.2 percent this year in the first increase since 2011 as a stronger global economy drives growth in demand. CWT/GBTA predicted a 3.5 percent rise in airfares in 2018 in a forecast released last year.

Airline costs, including for fuel and labor, have been rising, leading carriers to attempt to push up fares or add fuel surcharges to maintain margins.

The CWT/GBTA 2019 forecast said the rise in hotel rates would be driven by an increased demand for air travel, which would fuel demand for rooms. Room rates are expected to rise by more than 5 percent in Asia and Europe, by 2.1 percent in North America and to fall by 1.3 percent in Latin America.

Hotel groups including France’s Accor SA (ACCP.PA) and U.S.-based Marriott International Inc (MAR.O) have reported strong growth in revenue per available room in Asia and Europe this year.

The CWT/GBTA forecast said despite its positive outlook, risks remained for the global economy in 2019 from the rise of protectionist policies, the stoking of trade wars and uncertainty over Britain’s exit from the European Union.

Valkevich said the U.S.-China trade war had not yet led to any noticeable drop in demand for business travel, but it was a “downside risk factor” for the corporate travel industry.

Reporting by Jamie Freed; Editing by Gopakumar Warrier

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Oil steady after G20 warns of risks to growth

LONDON (Reuters) – Oil prices stabilized on Monday as worries over production losses were outweighed by concerns that trade disputes would reduce economic growth and hit global energy demand.

file photo: Oil barrels are pictured at the site of Canadian group Vermilion Energy in Parentis-en-Born, France, October 13, 2017. REUTERS/Regis Duvignau

Benchmark Brent crude oil LCOc1 was up 15 cents at $73.22 a barrel by 0750 GMT. U.S. light crude CLc1 was unchanged at $68.26.

Finance ministers and central bank governors from the world’s 20 biggest economies ended a meeting in Buenos Aires over the weekend calling for more dialogue to prevent trade and geopolitical tensions from hurting growth.

“Downside risks over the short and medium term have increased,” the finance leaders said in a statement.

The talks occurred amid escalating rhetoric in a trade dispute between the United States and China, the world’s largest economies, which have already slapped tariffs on $34 billion worth of each other’s goods.

U.S. President Donald Trump threatened on Friday to impose tariffs on all $500 billion of Chinese exports to the United States unless Beijing agreed major changes to its technology transfer, industrial subsidy and joint venture policies.

Economic and oil demand growth are closely correlated as expanding economies support fuel consumption for trade and travel, as well as for automobiles.

Worries over the impact of a trade war have balanced concerns over production losses and lack of supply at a time of rising demand.

U.S. energy companies last week cut the number of oil rigs by the most since March following recent declines in oil prices.

Drillers cut five oil rigs in the week to July 20, bringing the count down to 858, Baker Hughes energy services firm said on Friday. RIG-OL-USA-BHI

The U.S. rig count, an early indicator of future output, is higher than a year ago, when 764 rigs were active as energy companies have been ramping up production in anticipation of higher prices in 2018 than previous years.

Hedge funds and money managers cut their bullish wagers on U.S. crude for the first time in nearly a month, a further sign of weaker sentiment for the market, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday.

Most of the reduction occurred as money managers reduced their long position, or bets that oil prices would rise.

The market seemed unperturbed after Trump warned Iran not to threaten the United States or face consequences, with oil prices little changed after he sent a tweet – written all in uppercase – directed at Iranian President Hassan Rouhani.

Reporting by Christopher Johnson in LONDON, Aaron Sheldrick in TOKYO and Jane Chung in SEOUL; Editing by Dale Hudson

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U.S. courts allies with free trade offers at G20, France resists

BUENOS AIRES (Reuters) – The United States sought to woo Europe and Japan with free trade deals on Saturday to gain leverage in an escalating tariff war with China but its overtures faced stiff resistance from France at a G20 finance ministers meeting dominated by trade tensions.

U.S. Treasury Secretary Steven Mnuchin told reporters at the gathering of the financial leaders of the world’s 20 largest economies in Buenos Aires that he was renewing President Donald Trump’s proposal that G7 allies drop trade barriers between them.

“If Europe believes in free trade, we’re ready to sign a free trade agreement,” Mnuchin said, adding that such a deal would require the elimination of tariffs, non-tariff barriers and subsidies. “It has to be all three issues.”

Trump has angered European allies by imposing import tariffs of 25 percent on steel and 10 percent on aluminum, causing the European Union to retaliate with similar amounts of tariffs on Harley-Davidson motorcycles, Kentucky bourbon and other products.

Trump, who frequently criticizes Europe’s 10 percent car tariffs, is also studying adding a 25 percent levy on automotive imports, which would hit both Europe and Japan hard.

French Finance Minister Bruno Le Maire said the European Union would not consider launching trade talks with the United States unless Trump first withdraws the steel and aluminum tariffs and stands down on a car tariff threat.

“We refuse to negotiate with a gun to our head,” Le Maire told reporters on the sidelines of the G20 meeting.

Mnuchin’s offer to the European Union and Japan – along with a renewed effort to jump-start stalled talks with Mexico and Canada to modernize the North American Free Trade Agreement – come as the United States and China are at loggerheads in an escalating trade dispute with no talks in sight.

The world’s two largest economies have slapped tariffs on $34 billion worth of each other’s goods so far. Trump on Friday threatened to impose tariffs on all $500 billion of Chinese exports to the United States unless Beijing agrees to major structural changes to its technology transfer, industrial subsidy and joint venture policies.

Mnuchin is not meeting formally with any Chinese officials at the G20 meeting, but said that was because his normal counterpart, top Chinese economic adviser Liu He, is not attending.

The International Monetary Fund (IMF) also warned that the recent wave of trade tariffs would significantly harm global growth.

IMF Managing Director Christine Lagarde presented the G20 finance ministers and central bank governors meeting in Buenos Aires with a report warning that existing trade restrictions would reduce global output by 0.5 percent.

In the briefing note prepared for G20 ministers, the IMF said global economic growth may peak at 3.9 percent in 2018 and 2019, while downside risks have increased due to the growing trade conflict.

Lagarde’s presentation came shortly after Mnuchin said there was no “macro” effect yet on the U.S. economy.

Mnuchin said that, while there were some “micro” effects such as retaliation against U.S.-produced soybeans, lobsters and bourbon, he did not believe that tariffs would keep the United States from achieving sustained 3 percent growth this year.

“I still think from a macro basis we do not see any impact on what’s very positive growth,” Mnuchin said, adding that he is closely monitoring prices of steel, aluminum, timber and soybeans.

Finance ministers and Central Bank presidents pose for the official photo at the G20 Meeting of Finance Ministers in Buenos Aires, Argentina, July 21, 2018. REUTERS/Marcos Brindicci

G7 ALLIES

The U.S. dollar fell the most in three weeks on Friday against a basket of six major currencies .DXY after Trump complained again about the greenback’s strength and about Federal Reserve interest rate rises, halting a rally that had driven the dollar to its highest in a year.

The last G20 finance meeting in Buenos Aires in late March ended with no firm agreement by ministers on trade policy except for a commitment to “further dialogue.”

Brazilian Finance Minister Eduardo Guardia said participants agreed the risks to the global economy had increased since their last meeting, citing rising trade tensions and higher interest rates by major central banks.

He said the final communique would reflect the need for members, particularly in emerging markets that have been roiled by currency weakness, to undertake reforms to protect themselves against volatility.

German Finance Minister Olaf Scholz said he would use the meeting to advocate for a rules-based trading system, but that expectations were low.

“I don’t expect tangible progress to be made at this meeting,” Scholz told reporters on the plane to Buenos Aires.

The U.S. tariffs will cost Germany up to 20 billion euros ($23.44 billion) in income this year, according to the head of German think-tank IMK.

Bank of Japan Governor Haruhiko Kuroda said he hoped the debate at the G20 gathering would lead to an easing of retaliatory trade measures.

“Trade protectionism benefits no one involved,” he said. “I think restraint will eventually take hold.”

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Reporting by Luc Cohen, David Lawder, Eliana Raszewski and Scott Squires; Additional reporting by Gernot Heller, Stanley White and Leika Kihara; Editing by Nick Zieminski and James Dalgleish

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