Eurozone Records Significant Rise in Business Activity in October

Eurozone

Figures recently released showed that business activity in the Euro zone grew at the fastest pace in 2016 last month, helped by strong rebound in the German economy.

Initial reading of the IHS-Markit Purchasing Managers’ Index for the euro zone rose to 53.7 in October, the market information firm announced on Monday.

The initial estimate, which represents the highest monthly rise seen since the beginning of the year, marks a significant improvement on the reading of 52.6 for September. It also surpassed expectations of analysts, who had predicted a slightly-improved reading of 52.8.

The data released showed that the manufacturing and services sectors in the Euro zone are on the upward curve, somewhat dampening investors’ concerns about slowing growth in the region.

“The euro zone economy showed renewed signs of life at the start of the fourth quarter, enjoying the strongest expansion so far this year with the promise of more to come,” Chris Williamson, HIS Markit’s chief business economist, said in a release. “With backlogs of work accumulating at the fastest rate for over five years, business activity growth and hiring look set to accelerate further as we head towards the end of the year.”

However, a divergence in fortune was noticed between the two largest economies in the bloc, based on data released earlier on Monday. While business activity grew strongly in Germany, significantly boosting the Euro zone PMI, the story was different in France.

The German economy reversed the disappointing trend observed in September data, posting the best performance in three months. Its flash PMI composite output index was 55.1 in October, a significant improvement on the 16-month low reading of 52.8 recorded in the previous month.

IHS-Markit Economist Oliver Kolodseike noted that the PMI reading raises expectation that the weaker readings of the past two months “were just a temporary patch, rather than the beginning of a serious slowdown.”

In France, the PMI stood at 52.2 in October, down from 52.7 in the month before. The reading was dragged down by a weakening services sector despite a 10-month high PMI of 51.3, up from 49.7, for the country’s manufacturing sector.

Williamson said the initial October readings point to an expansion of 0.4 percent in the Euro zone’s quarterly output. The German economy is expected to expand by a region-high 0.5 percent. France’s economy, which shrunk by 0.1 percent in the second quarter, may grow by 0.2 percent to 0.3 percent.

The divergence in the level of growth in the Euro zone has raised concerns among analysts and policymakers that the currency bloc is excessively dependent on Germany for growth.

Stephen Brown, European economist at Capital Economics, said in a note that the divergence between the zone’s two largest economies makes it important for the European Central Bank to still “do more to bring inflation back towards its target on a sustained basis across the euro-zone.”

Last week, ECB President Mario Draghi said at a press conference that the bank has no intention of ending its quantitative easing program yet. It is no longer certain whether the program would still end as earlier scheduled in March 2017.

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Despite Pushback More People Turn to Payday Loans

Canada

Since 2009, the number of Canadians using payday loans has more than doubled. Today, roughly four percent of households across the country use short-term, high-interest loans, says a new study by the Financial Consumer Agency of Canada (FCAC).

According to the FCAC report, companies offering payday loans online have become very popular over the past several years because they provide cash-strapped customers with quick access to cash. And with many Canadians with poor credit ratings, they can borrow hundreds of dollars from payday lenders.

The FCAC says, unfortunately, many of these payday loan customers are unaware of the high costs involved with these alternative financial products. The federal consumer watchdog agency revealed that fewer than half of the 1,500 payday loan users did not know that these products are more expensive than a cash advance on a credit card because of interest rates as high as 500 percent on an annualized basis.

Moreover, many of the payday loan users are low- to moderate-income earners. However, a considerable number are payday loan clients with incomes of at least $120,000: seven percent.

With these results in hand, the FCAC has pledged to enhance its consumer education material. It will also collaborate more closely with provinces to generate awareness about the high costs of payday loans.

“Payday loans are an expensive way for consumers to borrow money,” said Lucie Tedesco, FCAC commissioner, in a statement. “The uptake of these short-term, high-cost loans has more than doubled in Canada recently, to four percent of Canadian households. This is, in my view, a trend that merits more attention. As a result of this study, FCAC has bolstered its consumer education material and has committed to working closely with the provinces and territories to raise awareness about the high cost of this form of credit.”

Jurisdictions across the Great White North have been working diligently to reform the payday loan industry and establish restrictions to ensure the most vulnerable are protected from the so-called debt traps.

But is it any wonder that more Canadians are using payday loans?

For the first time in its history, the level of debt held by Canadians exceeded the nation’s gross domestic product (GDP). Statistics Canada reported last month that personal debt to GDP reached 100.5 percent in the second quarter.

Canada’s household debt is one of the highest in the world. And a majority of the debt binge can be related to the skyrocketing real estate prices found in cities like Toronto, Vancouver and Montreal. When you add historically low interest rates by the Bank of Canada (BoC) into the mix, you have a populace that has a ferocious appetite for debt.

Jane Rooney, financial literacy leader of the FCAC, warned that single-digit national savings rates and a paucity of emergency funds “make a payday loan a solution for many consumers despite their very high cost.”

Simply put: debt is the biggest issue facing Canadians today. Studies have shown that just a 25-basis point rate hike could negatively impact nearly one million Canadians. When this happens you know the country has a debt problem.

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China Oceanwide Agrees $2.7 Billion Deal for Genworth Financial

Oceanwide

Investment firm China Oceanwide has reached an agreement to buy American insurer Genworth Financial Inc. in a deal that further highlights increasing investment from Chinese companies in the U.S. economy.

The cash deal announced Monday will see the Beijing-based firm pay $5.43 in cash for each unit of the U.S. insurer’s stock, about 4.2 percent higher than Friday’s closing price of $5.21. The total value of the transaction is about $2.7 billion.

As part of the deal, China Oceanwide promised to help Genworth with its debt challenges and strengthen the company’s life insurance businesses. It will provide $600 million to enable the insurer deal with debt maturing in 2018 and will give another $525 million to bolster its life insurance units.

Genworth, one of the largest mortgage insurance companies in the U.S., has yet to recover from the financial crisis of recent memory. It was severely hurt by high rate of defaults on mortgages by homeowners following the crash in the real estate market. It was further hit hard by extremely low interest rates.

The insurer’s fortunes did not improve much following the rebound in the real estate market as a result of huge losses in its long-term insurance business, which covers nursing home stays and home-health support.

The woes confronting Genworth forced Chief Executive Tom McInerney to embark on asset sale in order to address liquidity issues.

“In acquiring Genworth and contributing $1.1 billion of additional capital, we are providing crucial financial support to Genworth’s efforts to restructure its U.S. life-insurance businesses,” Lu Zhiqiang, founder of China Oceanwide, said in a statement.

The Chinese billionaire noted that the deal is structured in manner that will enhance the likelihood of getting regulatory approval.

This transaction marks growing investment in the U.S. by the Chinese company, whose investment ranges from real estate to finance and energy. The privately-held firm, which was established in 1985, has invested hundreds of millions of dollars in the U.S. real estate market over the past two years. It has pumped money into commercial real estate in states such as California, New York and Hawaii.

As shown by Bloomberg data, the Genworth deal is the biggest yet by Lu’s company.

China Oceanwide boasts controlling stakes in more than a few companies and has a market capitalization of around $1.6 billion. It also has a 4.6 percent stake in Chinese lending giant China Minsheng Banking Corp., of which it was a founding investor.

Chinese companies are increasingly looking elsewhere to put their funds amid slowing domestic economy and weakening local currency. They have announced an estimated $207 billion in overseas deals in 2016.

Asian investors are also taking special interest in insurance companies which they consider good means of extending their reach into other businesses. Analysts say this approach gives them additional resources that can be utilized to make more future deals.

The transaction has already been approved by the boards of both companies. It is scheduled to close by mid-2017, subject to approval by regulators.

China Oceanwide said Genworth will be allowed to maintain its senior management and continue to do business as a standalone company after the acquisition.

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Visa Reports Better-Than-Expected Quarterly Earnings

Visa

Visa Inc says earnings in its fiscal fourth quarter jumped about 28 percent, higher than analysts’ expectations and helped by results from newly-acquired sister company, Visa Europe, and increased payments volume on the network.

The global payments technology company revealed on Monday that its total operating revenue for the quarter ended Sept. 30 stood at $4.26 billion, representing a rise of 19.3 percent from a year ago. The figure was higher than the $4.23 billion predicted by some analysts.

Total payments volume during the fiscal fourth quarter jumped to $1.86 trillion, up about 47 percent from a year earlier, on a constant dollar basis. Roughly 41 percent of the total payments volume during the period was accounted for by the U.S. market.

The report comes a week after Chief Executive Officer Charles Scharf announced that he would step down from his position on Dec. 1. He said he could no longer spend sufficient time in San Francisco to do his job more effectively.

Before his departure, however, Scharf moved to consolidate Visa’s position as the largest payment processor in the world with the acquisition of sister company Visa Europe in a $23 billion deal back in June. That move contributed to the fourth quarter results exceeding expectations of analysts.

Visa said Europe accounted for around 25 percent of the total payments volume during the fiscal fourth quarter.

“We have begun to see the benefits from our acquisition of Visa Europe and strong cost discipline helped our results,” Scharf said in a statement.

The payment company revealed that cross-border volumes, including Visa Europe, soared 149 percent on a constant dollar basis.

Visa earned $1.9 billion or 79 cents per share during the quarter, up from $1.5 billion or 62 cents a share a year ago. Profit per share, when adjusted for one-time items, was 78 cents.

Analysts polled by Thomson Reuters had provided an average estimate of 73 cents a share in adjusted earnings.

Adjusted earnings for Class A shares are forecast to rise by a percentage in the mid-teens on nominal dollar basis during the current fiscal year, as reported by Reuters. Net revenue is expected to expand by between 16 and 18 percent, also on a nominal dollar basis.

Chief Financial Officer Vasant Prabhu stated that uncertainty surrounding Brexit and the economy in Europe is likely to impact on payment volumes next year.

Visa’s operating expenses was $1.64 billion during the quarter, up 27 percent. The increase was attributed principally to the inclusion of Visa Europe in the results.

The leading payment processor said it took a $110 million pretax charge during the quarter to take care of severance costs, including proposed cuts in Europe.

Visa shares closed 1 percent up during regular session on Monday, although they oddly declined in after-hours trading. The shares have climbed roughly 7.2 percent in 2016, compared to a rise of around 6 percent for closest-rival MasterCard Inc.

Scharf, who said his retirement was influenced by desire to spend more time with his family, is to be replaced by Visa long-time board member Alfred Kelly as the CEO.

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