All posts in Business News

15 Oct 2018

Rising interest rates are expected to cool the market for wind farms

Wind farm prices may have peaked, one of Ireland’s most experienced corporate financiers has warned, despite strong overseas demand for a range of Irish assets.

IBI chief executive Tom Godfrey said wind farm assets were probably “as expensive as they’re going to be” now that the low interest rate environment had begun to change.

Rising official interest rates, so far largely in the USA, were prompting investors to rethink strategies, both because returns on relatively safe bond investments were rising to attractive levels and because a rising interest rate environment would ultimately drive up borrowing costs and therefore put downward pressure on asset prices.

The comments follow a number of big Irish sales which include last month’s deal, when IBI advised Coillte on the disposals of its stake in four wind farms to Dublin-listed Greencoat Renewables for €136m.

Meanwhile, Mr Godfrey, speaking at an event to mark a year since IBI’s management buyout from Bank of Ireland, said the Irish market for mergers and acquisitions had held up despite the uncertainties of Brexit.

Private equity buyers attracted into Ireland by the favourable economic backdrop were fuelling “unprecedented” demand for Irish assets, and there was little evidence that Brexit has dented that, he said.

The Irish market had been transformed since the crash by a wave of new debt and equity providers; giving buyers more options and greater flexibility to structure deals.

Mid-market activity (€5m to €250m) was “extremely robust” and valuation expectations among sellers remained high, he said.

Article Source: http://tinyurl.com/kbwqb42

15 Oct 2018

Budget picks

Budget 2019 didn’t put much money back into our pockets. Much of the focus of Finance Minister Pascal Donohue last Tuesday was on housing and health – with little left in the pot for anyone else. Many of us will only be better off to the tune of about €5 or €6 a week next year as a result – and some of us won’t be any better off at all. Here are some areas where we’re still losing out financially and which the Budget could have tackled better.

SQUEEZED MIDDLE

The €750 increase in the amount which people can earn before getting hit for the higher rate of income tax has not addressed the issue of high income tax rates kicking in too early “in any substantive way”, according to Pat O’Brien, tax director with Ernst & Young (EY). Budget 2019 increased the amount that a single person can earn before paying the higher rate of tax from €34,550 to €35,300 – and from €43,550 to €44,300 for married couples where only one spouse is working.

“The biggest issue for those on median incomes remains the rapid progression to the 40pc top income tax rate,” said O’Brien. “The proposed increase of €750 to €35,300 does little to address this. By comparison, a single individual in Britain would have to earn more than £46,350 (€52,845) before paying the higher tax rate when personal allowances are taken into account. Working people will still reach the highest income tax rate on relatively modest levels of income.”

Average Irish earnings stand at about €38,700, according to the latest official figures – so people on an average wage will still get hit for the higher rate of income tax next year, despite Budget 2019.

KIDS’ INHERITANCE

Many children will still get stung for inheritance tax bills of tens of thousands of euro or more over the next year because the only change introduced by Budget 2019 in this regard was a token one.

Last Tuesday’s Budget increased the value of gifts or inheritances which children can get tax-free from their parents over their lifetime by €10,000 – to €320,000. “This exemption could have been increased more without much damage to the State finances,” said Michael Gaffney, a tax expert with KPMG. “I think increases in house prices, combined with the passing of the baby boomer generation, means the yield from inheritance tax will be higher than expected.”

In early 2009, a child could inherit up to €542,544 from his parents over his lifetime – and the rate of inheritance tax charged back then was 22pc. On top of the dramatic reduction in the amount which can be inherited by children tax-free since then, the rate of inheritance tax charged today is 33pc.

“In early 2009, a child inheriting a family home valued at €500,000 would pay no inheritance tax – compared with an inheritance tax liability of just under €60,000 today,” said Alison McHugh, director of private clients with Deloitte. “The Government needs to make a bolder move to increase the inheritance tax threshold so they are brought more in line with where they were ten years ago. With the average asking price for a Dublin home being about €375,000, most transfers of family homes to a single child will be within the inheritance tax net.”

LOST TAX BREAKS

A raft of tax breaks, such as the reliefs on trade union subscriptions, bin charges and medical expenses, have been either abolished or curtailed since the first austerity budget. These reliefs were worth hundreds, if not thousands, of euro to taxpayers.

Given that employment is at record highs, and that Ireland is forecast to record the highest economic growth in Europe this year, surely Minister Donohoe could have found room to reverse some of the tax break cuts of recent years.

One of the most valuable tax breaks was the relief on medical expenses. Before 2009, you could claim back 41pc of the cost of certain medical expenses in tax relief.

That tax relief was chopped to 20pc in 2009 and it has remained at that rate since. The GP visit card has helped alleviate the cost of doctor visits for many elderly – and for the parents of children under the age of six. However, many people are still facing crippling medical bills. An increase in the rate of tax relief on medical expenses would help people cope with those bills – or afford quicker medical attention.

Budget 2019 changes in the Drug Payment Scheme, a Government scheme which can help curtail medical bills, will certainly help those who regularly face high medical expenses. This scheme is aimed at individuals and families who don’t have a medical card and who normally have to pay the full cost of their medication.

From this January, the cost of buying prescribed drugs or medicine under the Drug Payment Scheme will be no more than €124 a month – as under Budget 2019 the monthly cap will be cut from €134 to €124. Ten years ago however, the cap was set at €90 – so there is still much room for improvement here.

There have been plenty of other changes to our tax system in recent years which have taken money out of our pockets. The tax relief on bin charges was abolished in 2011. Given that many households have seen a substantial increase in their bin charges since, a restoration of that tax relief would help ease the pressure on households.

In 2011, the tax relief on professional subscriptions was abolished. This tax relief was available to workers whose role required them to be members of a professional body and who paid an annual subscription to retain their membership. “Restoration of the relief for professional subscriptions would have been welcome,” said O’Brien. “This issue affects a vast range of employments from human resources to finance to IT. For many workers, being in membership of a professional body is the modern equivalent of the ‘tools of the trade’.”

DRIVERS

Workers who have been given electric cars or vans by their employers could face a tax bill next year, depending on the value of the electric vehicle. This is due to changes in the way benefit-in-kind – the tax which employees pay on non-cash benefits received from their employer – is treated for electric vehicles.

In 2018, employees did not have to pay any BIK if they had a company car which was also an electric car, regardless of the value of the vehicle – because a 0pc BIK rate was in place for electric cars or vans. In Budget 2019, Minister Donohoe extended the 0pc BIK rate for electric vehicles for a period of three years. However, he also put a cap of €50,000 on the original market value of electric vehicles which qualify for this rate. No such cap was in place in 2018. This €50,000 cap means that many employees will now face a BIK bill – unless their employer gives them an electric car worth less than €50,000.

To truly encourage the takeup of electric cars, the Minister should consider removing this cap.

From this January, buyers of new diesel cars will face a higher Vehicle Registration Tax (VRT) bill than they did previously – due to the 1pc VRT surcharge introduced under Budget 2019.

“For those workers who commute long distances, diesel cars remain the optimum choice and many are forced to upgrade their car due to high annual mileage,” said Robert Dowley, partner with KPMG. “The 1pc VRT surcharge on diesel cars will have an impact when they upgrade their car.”

PARENTS

The cost of sending a child to college has become one of the biggest financial challenges facing many parents. The total bill could come to more than €50,000 – if the child is living away when home and attending college for more than four years. At €3,000 a year, the student contribution charge alone accounts for about a quarter of the college bills faced by parents, according to the latest cost of student living survey by the Dublin Institution of Technology.

The student contribution charge has increased steadily over the years -with some of the biggest hikes occurring during the recession and in the early Noughties. Twenty years ago, the charge (whose name has varied over the years) was only €330. The tax relief on tuition fees allows parents to claim back up to a fifth of the cost of the student contribution charge, but only for any second or subsequent children in third-level education.

Many parents therefore lose out on the chance to claim this tax relief – particularly if the age gap between their children is wide or if they have only one child. Were it possible to claim the tax relief on the student contribution charge for the first child in third-level education, this could make this tax break more accessible to parents – and ease the burden of college bills. To prevent the tax relief becoming a runaway bill for the Government, a limit could be put on the amount of relief claimed by the same family.

Another change in recent years which has put parents at a disadvantage is the taxation of maternity pay. Since July 2013, State maternity pay has been taxed. State paternity pay, introduced in late September 2016, is also taxable.

Despite the upcoming increases in maternity and paternity pay, Irish parents would find it very hard to make ends meet if relying solely on those benefits during maternity or paternity leave. For this reason, the taxation of this benefit seems unfair – particularly for those who don’t get their State maternity pay topped up by their employer when on leave. (Employers are not obliged to pay women who are on maternity leave).

For stay-at-home parents, next year’s €300 increase in the home carer tax credit is welcome.Budget 2019 also had some good news for those families with two parents who work outside the home: more of these families are set to get childcare subsidies next year. This is due to an increase in the maximum net income a family can earn to be eligible for subsidies under the Affordable Childcare Scheme.

However, “in our view, this change does not go far enough to encourage parents back into the workforce where they are faced with expensive childcare costs”, said McHugh. “The Government should consider the introduction of a child tax credit such that all parents – whether working in or outside the home – will be treated equally.”

As the old cliché goes, a lot done, more to do…

BUDGET PICKS
PENSIONERS

State pension to increase by €5 a week from March 2019.

Full Christmas bonus to be paid this December.

SELF-EMPLOYED

Extension of the Jobseeker’s Benefit scheme to self-employed from late 2019.

The earned income tax credit to increase by €200 to €1,350.

PARENTS

Two weeks’ paid parental leave for each parent – from November 2019.

Home carer tax credit to increase from €1,200 to €1,500.

WORKERS

National minimum wage to rise from €9.55 an hour to €9.80 an hour from the start of next year.

Small cut in the Universal Social Charge for earnings of between €19,874 and €70,044.

An increase of €750 in the income tax standard rate band – from €34,550 to €35,300 for single individuals; and from €43,550 to €44,300 for married one-earner couples.

HOTELS, HAIRCUTS & EATING OUT

The price of eating out – and staying in hotels – is set to increase next year due to a 50pc rise in the Vat rate on tourism activities. Hotels and restaurants will have to charge 13.5pc Vat next year. The cost of a haircut is also likely to increase.

CIGARETTES

A 50c increase in the excise duty on a packet of 20 cigarettes.

Article Source: http://tinyurl.com/kbwqb42

15 Oct 2018

Irish food supplier Greencore to sell entire US business for €927m

Irish food-to-go supplier Greencore has reached an agreement to sell its entire US business to Hearthside Food Solutions for £817m (€927m).

Greencore said it will hand a large part of the proceeds to shareholders via a special dividend of £509m, or 72 pence per ordinary share.

The group said that the deal will also “support a strengthened balance sheet”, with up to £293m helping to reduce leverage.

The transaction EV / EBITDA is a multiple of 13.4x/14.2×2,3.

Hearthside is a scale US contract food manufacturer with a heritage in US food industry outsourcing.

Greencore’s CEO, Patrick Coveney, said that the proposed sale represents “compelling and immediate realisation of value” for company shareholders.

“We have always had a firm conviction on the underlying value and growth prospects of our US business and believe that this offer fully reflects that,” he said.

The intention post-transaction is that Greencore will have greater financial and strategic flexibility in its core UK market, with potential for dynamic capital management.

Looking ahead, we are confident that we can deliver further growth and returns in the dynamic UK market,” said Mr Coveney.

“The proposed transaction would enhance our strategic and financial flexibility, which would allow us to build on our industry-leading position in our core UK market whilst also taking advantage of emerging organic and inorganic growth opportunities.”

Completion of the deal is expected by late November 2018, conditional on approval of Greencore shareholders and US HSR clearance.

Article Source: http://tinyurl.com/kbwqb42

12 Oct 2018

Brexit the big cloud in bank’s forecasts for jobs and growth

THE Central Bank has laid out a rosy economic forecast, with continued growth and tens of thousands more people in work over the next three years.

However, it warned that a hard Brexit would damage the country – and even a soft Brexit would slow growth substantially for an economy that is more exposed to Britain than any other.

The bank said a no-deal Brexit would potentially reduce growth by 2.75pc after five years and reduce by 40,000 the number of new jobs that could be created compared with a scenario where Britain stayed in the EU. Even a “soft Brexit” would knock 1.7pc off growth.

The bank’s central forecasts upgraded this year’s growth forecast to 7.2pc and 2018 to 6.7pc, while its initial estimates for 2019 and 2020 see growth tapering to 3.7pc in the final year. Successive years of economic growth will push the unemployment rate down to 4.7pc and should boost wage growth, it said.

The numbers reflect a Brexit deal being struck and the trading relationship with Britain remaining unchanged as a result through the forecast period to 2020.

“If the worst case scenario was to evolve then you would expect significant downward revisions to the 2019 and 2020 figures,” Mark Cassidy, the bank’s head of economics and statistics, said yesterday.

The bank’s forecasts -ex-Brexit – were broadly in line with those given by Finance Minister Paschal Donohoe in this week’s Budget, although it said it had advised the Government to move faster to a budget surplus to alleviate the risk of overheating.

Mr Donohoe has said he would run a balanced budget from 2019 after a small deficit in 2018 in fiscal plans that were widely seen as paving the way for an election.

With monetary policy set in Frankfurt for the whole eurozone, Ireland has few options apart from the budget to rein in economic overheating.

The Central Bank has already put in place measures to curb the property market. Yesterday Mr Donohoe told Independent News & Media’s 2019 Budget Breakfast that his decision to raise Vat on the tourism sector showed he was not afraid of making difficult decisions.

Article Source: http://tinyurl.com/kbwqb42

12 Oct 2018

Iseq hits two-year low as market volatility returns

THE Iseq index of Irish shares slumped to its lowest level since November 2016, mirroring moves in European shares as investors moved to shed risk.

The market was gripped by turbulence for a second consecutive day, with sharp falls at heavily weighted stocks almost pushing the index through the 6,000 level.

Cement giant CRH – the most heavily weighted stock on the index – lost more than 3pc yesterday, while Aryzta lost almost 7pc as chairman Gary McGann pleaded with investors to back the company’s €800m capital raising plan. Bank of Ireland and Smurfit Kappa also weighed on the index, each losing more than 3pc. The Iseq closed down almost 2.2pc at 6018.81.

European stocks also fell to the lowest level since late 2016, building on sharp declines in Asia amid growing concern about whether a global sell-off was merely a market correction or the start of a deeper rout.

Europe’s Stoxx 600 dropped 2pc in a second day of losses, with declines in all sectors, as World Bank chief Jim Yong Kim warned of worsening trade tensions. Insurance as well as oil and gas shares were the benchmark’s biggest laggards, ending 3.2pc and 3.1pc lower, respectively. That mirrored trends in Ireland where Providence Resources lost more than 8pc, with the oil price being dragged lower. FBD lost almost 4pc.

Italy’s FTSE MIB, the worst performer among regional markets this year, declined 1.8pc, entering a bear market. Concerns about Italy’s debt burden and the fiscal policies of its new government are weighing on European sentiment.

A sell-off in US stocks accelerated in afternoon trading yesterday. The S&P 500 fell more than 2pc, the Dow Jones Industrial Average lost as much as 600 points and the Nasdaq 100 Index was down almost 10pc from an August record.

The S&P 500 was on a six-day slide of almost 7pc in what is the longest slump of Donald Trump’s presidency.

US companies are increasingly fretting over the impact of the burgeoning trade war, while the US Fed has been raising interest rates, helping force a repricing of riskier assets like stocks as returns on bonds rise.

John Lynch, chief investment strategist for LPL Financial, told clients that “volatility is back and it may require more active strategies”, adding: “Volatility is also not to be feared, but embraced, as varying data points will cause bouts of market anxiety. But remember that fundamentals are still strong.”

Article Source: http://tinyurl.com/kbwqb42

10 Oct 2018

150,000 self-employed workers get big gains

THE self-employed have emerged as major gainers from the measures announced.

Those who work for themselves will be able to earn more before paying tax, will get a new entitlement to Jobseeker’s Benefit if they lose their jobs, and have escaped any increase in social insurance contributions.

The changes are set to benefit some 150,000 people, the Dáil was told.

The earned income credit will rise by €200 to €1,350. Basically, this is money a self-employed person can earn before they pay tax.

They also gain from the increase of €750 in the income tax standard rate band for all earners.

This goes from €34,550 to €35,300 for single individuals, and from €43,550 to €44,300 for married one-earner couples.

Changes to the 4.75pc universal social charge rate (USC), which is coming down to 4.5pc, will also benefit those who work for themselves.

Department of Finance figures show that a single self-employed earner on €55,000 will be €452 a year better off from the income tax and USC changes, that take effect from next year.

But tax experts said that those who work for themselves are still worse off by €300 than their PAYE counterparts.

Article Source: http://tinyurl.com/kbwqb42

10 Oct 2018

Multinationals hit with surprise tax on assets exiting State

Multinational companies (MNCs) moving assets offshore to another tax jurisdiction now face an exit tax of 12.5pc as a result of Budget 2019.

The new measure, which took effect from midnight last night, will tax unrealised capital gains where companies migrate residence or transfer assets offshore.

The “big surprise” from the Budget follows sweeping changes to the US tax code last year aimed at luring foreign intellectual property and services back to America.

The new exit tax regime, which is not expected to yield any revenue in its first year of operation, is a mandatory, Europe-wide measure that has been introduced by Finance Minister Paschal Donohoe a year ahead of a deadline of January 1, 2020, for member states to comply with the European Union’s Anti-Tax Avoidance Directive (ATAD).

The forthcoming Finance Bill will also provide for the introduction of a Controlled Foreign Company (CFC) regime as required by the ATAD. Together, the new rules will prevent the diversion of profits to offshore entities in low- or no-tax countries.

It had been feared that the exit tax, one of five legally-binding anti-abuse measures to prevent aggressive tax planning, could have been applied in Ireland at the current capital gains tax rate of 33pc rather than the announced 12.5pc.

“By introducing the measure from midnight, Minister Donohoe has given businesses certainty,” said John Gulliver, head of tax at leading law firm Mason, Hayes and Curran.

“It has also provided a disincentive to US-based MNCs to repatriate intellectual property to the US to take advantage of the special new US tax 13.125pc federal rate on foreign derived intangible income.

“Mr Donohoe has protected the Irish tax base by acting promptly, but with an opportunity to provide some transitionary relief in the forthcoming Finance Bill or any financial resolutions passed in the Dáil”.

Mr Donohoe said during his Budget speech that the early introduction of the exit tax will “provide certainty to businesses currently located in Ireland and considering investing in Ireland in the future”.

However, Peter Vale, tax partner at Grant Thornton Ireland, said that “the surprise element is never welcome”.

“The big surprise in the Budget from a corporate tax perspective was the introduction of a low 12.5pc exit tax,” said Mr Vale.

“While the reduction in the tax rate was not unexpected, the introduction from midnight of new tighter rules that impose the exit tax in line with more stringent EU rules was not anticipated. Under EU rules, Ireland was obliged to tighten its exit tax rules, but not before January 1, 2020. The early adoption of the new rules is a surprise.”

The onshoring of intellectual property assets into Ireland in recent years has contributed to a massive surge in corporation taxes.

Around €0.7bn of the 2018 over-performance is estimated as a “one-off”, Mr Donohoe warned yesterday, adding that he will assign a portion of the corporate tax overshoot to the State’s rainy day fund. “As these receipts are not expected to repeat next year, they do not feature in projecting receipts for 2019,” said Mr Donohoe.

One issue investors, particularly property companies, will be monitoring is the issue of transfer pricing rules, following the strongest Government remarks to date on the hot button issue.

“I have also committed to a review and update of Ireland’s transfer pricing provisions in 2019 to ensure our tax system is in line with new international best practice,” said Mr Donohoe yesterday.

At present, transfer pricing rules do not apply to non-trading companies such as property companies and other investment companies.

Any changes to the rules could affect the debt deductibility of property investment companies.

Article Source: http://tinyurl.com/kbwqb42

10 Oct 2018

The key points from Budget 2019

The Finance Minister described it as a “caring” budget that will secure Ireland’s future.

He spent some 75 minutes outlining the budget with spending plans amounting to 66.5 billion euro

Here are some of the key points from Budget 2019:

– Spending on health will increase by a billion euro which brings the total budget for the Department of Health to 17 billion euro.

– Some 110 million euro will be set aside for Brexit-related measures across the Government. Brexit was described as the “political, economic and diplomatic challenge of our generation”.

– There will be a 50 cent reduction in prescription charges for those aged over 70.
As day breaks over Government buildings and people make thier way to work, what can middle income earners expect from Budget 2019. Picture; Gerry Mooney
– The cost of a packet of 20 cigarettes will be going up by 50 cent, to bring the total cost of a pack to 12.70 euro.

– Duties on alcohol go unchanged.

– There will be no changes in the price of diesel or petrol.

– In a bid to tackle the rising housing crisis in Ireland, the Government is to commit 2.3 billion euro to the housing programme. Over the next four years, 6.6 billion euro will go towards accelerating the “delivery of housing supports”.

– The VAT rate for the tourism and hospitality sector will increase from 9% to 13.5%, raising 466 million euro in extra taxes.

– To ease the burden facing low and middle income earners, the finance minister said he was raising the entry point for the higher rate of income tax for all earners by 750 euro. It means single workers will not have to pay the higher rate until they earn 35,300 euro per annum.

– Social welfare payments are to rise by five euro.

– Education spending will reach 10.8 billion euro in 2019. There will be an extra 1,300 posts in schools next year.

– From November next year, a new paid parental scheme will be introduced to provide two weeks’ leave to every parent of a child in their first year. This will increase this to seven extra weeks over time.

– Government will commit 1.25 billion euro for the delivery of 10,000 new social homes in 2019. An additional 121 million euro will be provided for the Housing Assistance Payment in 2019 to create an additional 16,760 new tenancies in 2019.

– As of January 1, landlords will be able to claim 100% mortgage interest relief on any loan used to purchase, improve or repair any residential rental property.

– Ireland’s long-standing 12.5% corporation tax will remain.
– An additional 1.26 billion euro in capital expenditure will be allocated between 2018 and 2021 to the Department of Transport, Tourism and Sport.

– An additional 40 million euro will be raised next year by increasing duty on betting firms from 15% to 25%. The Government will also double betting tax from 1% to 2% next year.

– The garda budget will rise by 60 million euro while the defence sector is to benefit from an extra 29 million euro.

– An extra 300 euro in the home carer credit will bring the total value to 1,500 euro per year.

– Extra money for rural regeneration.

– The film corporation tax credit will be extended beyond the current date of 2020 until December 2024.

– Newspaper VAT to stay at 9% while online newspaper VAT will be cut from 23% to 9%.

Article Source: http://tinyurl.com/kbwqb42

08 Oct 2018

No SMEs have taken up shares deal: IPSA

A share option scheme for Irish SMEs launched as part of Budget 2018 has had no uptake and needs to be modified, according to an industry group that lobbied for it last year.

The Key Employee Engagement Programme (Keep) is supposed to help small and medium enterprises (SMEs) hold on to talent by granting workers share options in the business without being hit with punitive taxes.

But there’s no evidence the Keep scheme has had any uptake, according to Gill Brennan, head of the Irish Proshare Association (IPSA).

The IPSA executive council includes “the majority of the service providers who would implement and put in place share schemes for public and private sector companies”, Ms Brennan said.

Council members come from KPMG, PwC, Deloitte, and McCann Fitzgerald among others.

“There have been maybe around 20 or 30 enquiries [to council members] about the Keep scheme, but no SME has actually implemented the Keep scheme to date,” Ms Brennan told the Irish Independent.

Revenue said it can not provide figures about the take-up of Keep until after next March, when the first tax returns for the scheme are due.

Ms Brennan said the current scheme is too restrictive and should be amended. She said the limits on the value of share options that can be issued, as well as the exclusion of share options issued to part-time staff, have the effect of “unfairly excluding many legitimate and interested micro, small and medium-sized Irish businesses from participation.

Representatives from IPSA and SMEs have met with Government about this and the message is clear: you need to change Keep now or no one is going to touch it,” Ms Brennan added.

Article Source: http://tinyurl.com/kbwqb42

08 Oct 2018

China shares weigh on regional markets despite Central Bank support

Shares in Asia slumped Monday as China’s markets stumbled in their first trading day after a one-week holiday even though Beijing’s Central Bank increased liquidity to offset the impact of an escalating trade dispute with the United States.

European markets were also set to weaken, with financial spreadbetters expecting the FTSE to open 0.07pc lower, Frankfurt’s DAX down 0.03pc, and Paris’ CAC down 0.1pc.

The People’s Bank of China (PBOC) on Sunday cut the level of cash that banks must hold as reserves, aimed at lowering financing costs as policymakers worry about fallout from the tariff row with the United States.

Reserve requirement ratios (RRRs) – currently 15.5pc for large commercial lenders and 13.5pc for smaller banks – will be cut by 100 basis points effective October 15, the PBOC said, matching a similar-sized move in April.

Asian shares were also hit on Monday as investors in Chinese stocks reacted for the first time to new pressure from Washington and a report that Chinese spies had compromised US hardware.

At 05:40 GMT, China’s blue-chip CSI300 index was 3.5pc lower while the main Shanghai Composite Index was down 2.9pc. The tech-heavy ChiNext board fell 3.08pc.

The losses in China dragged down MSCI’s broadest index of Asia-Pacific shares outside Japan, which was 0.9pc lower.

James McGlew, executive director of corporate stockbroking at Argonaut in Brisbane, said Chinese investors were catching up after global markets turned lower during China’s week-long National Day holiday.

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“That is exacerbated by the fact that you would have had quite a few long positions going into that time-off and people just quit them and were hitting the bid today,” he said.

“We’ve been expecting for some time now the US market to start delivering volatility. We find it quite difficult to reconcile the political machinations that are going on over there being friendly to markets.”

On Thursday, US Vice President Mike Pence highlighted disputes with China on issues such as cyber attacks, Taiwan, freedom of the seas and human rights, marking a sharpened US approach toward Beijing beyond the trade war.

On Friday, Chinese technology stocks listed in Hong Kong slumped on a Bloomberg report that the systems of multiple US companies had been compromised by malicious computer chips inserted by Chinese spies.

On Monday, Hong Kong’s Hang Seng index was down 0.5pc and a sub-index tracking information technology firms was 0.9pc lower. China’s yuan was weaker at 6.8981 per US dollar at 05:19 GMT, compared with a previous onshore close of 6.8725 per dollar. Earlier on Monday, the PBOC set the midpoint of the yuan’s daily trading band at 6.8957 per dollar, its weakest level since May 11, 2017.

The offshore yuan was also weaker at 6.9050 per dollar.

Higher yields on US Treasuries are likely to put more pressure on the yuan as China continues to make use of targeted policy easing to energise the domestic economy.

“We expect the PBoC will continue its easing efforts to keep liquidity ample and loosen its credit control to make funds more accessible to the broader economy,” BofA Merrill Lynch analysts said in a note.

“Moreover, there is still room for further RRR cuts when necessary, though the chance for an interest rate cut is limited given the continued Fed rate hiking cycle, in our view.”

On Monday, the spread between Chinese and US 10-year Treasury bonds was 58.1 basis points according to Eikon data, compared with 150 basis points at the end of 2017.

Equity markets around the world came under pressure last week after a steep sell-off in US Treasuries, prompted by hawkish comments from US Federal Reserve officials and data widely seen as supporting further US rate hikes.

Friday’s US non-farm payrolls showed job creation slowed in September, likely from Hurricane Florence’s impact on restaurant and retail payrolls, but the Labor Department report also showed a rise in wages that could keep the Federal Reserve on track for more interest rate hikes.

Investors are also keeping an eye on Brazil after right-wing Congressman Jair Bolsonaro won nearly half the votes in Brazil’s first-round presidential election on Sunday, marking a major shift to the right in Latin America’s largest nation fuelled by voters’ anger at corruption.

In currency markets, the dollar was 0.1pc stronger against the yen at 113.83, while the euro was 0.1pc weaker against the dollar at $1.1512.

The dollar index, which tracks the greenback against a basket of six major rivals, was up 0.09pc at 95.707.

Oil prices fell more than 1pc after the US said it may grant waivers to sanctions against Iran’s oil exports next month, and as Saudi Arabia was said to be replacing any potential shortfall from Iran.

US crude was down 0.7pc at $73.80 a barrel. Brent crude fell 0.9pc to $83.38 per barrel.

Spot gold fell 0.5pc to $1,196.51 per ounce.

Article Source: http://tinyurl.com/kbwqb42