News > Capital Markets

Barclays change interest rate call
Capital Markets
<p>Barclays' economists have changed their thinking about global monetary policy. They expect the U.S. Fed to hike rates next month as a result of the solid October payroll number and the ECB to extend asset purchases and reduce the depo rate because of rising deflationary risks. Further signs that world's largest economies no longer take the same path.</p> <p>"The recent change in communication, the faster dissipation in uncertainty (VIX mean-reverting faster), and a very solid payroll report necessitate a change in our call to December. We now forecast a federal funds range of 25-50bp in December, up from the current 0-25bp," write Barclays.</p> <p>"The [ECB] Governing Council will likely adjust the degree of monetary policy accommodation in December, given the downside risk to the macroeconomic outlook and the expected slow recovery trajectory for headline inflation, which is likely to remain below the ECB’s target until at least the end of 2017. We expect it to do this by extending the time frame of asset purchases, possibly with a strengthening of the forward guidance. In addition, we now expect a cut in the depo rate of 10bp, to -0.30%," they add.<br /> Photo: Michael Dadino </p>
China exports plunge 6.9% in October, more than twice as much as expected
Capital Markets
<p>Exports in China plunged 6.9% in October, twice the rate expected. The weak numbers are raising important questions for China: How much more stimulus does it have left in its arsenal and will the news re-ignate an exodus of foreign reserves? In October, foreign reserves grew by $11.39 billion, reversing a 5-month run of outflows. Could this mean more yuan devaluation is now back on the table?</p> <p>CNBC reports:<br /> October exports fell 6.9 percent from a year ago, dropping for a fourth month, while imports slipped 18.8 percent, leaving the country with a record high trade surplus of $61.64 billion, the General Administration of Customs said on Sunday.<br /> In September, exports had slid 3.7% while imports crumpled, falling 20.4%.</p> <p>In the first 10 months of the year, exports and imports fell 8.5% from a year earlier -- a far cry from the goal of 6% growth.<br /> Photo: Robert Scoble</p>
NYC discovers Wall Street managers hid nearly $178 million in fees for pensions
Capital Markets
<p>New York City paid $178 million more in fees in fiscal year 2015 -- the "vast majority" in undisclosed incentive fees, The New York Post reports exclusively.</p> <p>The total bill for managing pensioners assets rose to $708 million from $530 million a year earlier.</p> <p>The more than 200 managers didn't even do a bang up job for the City: The pension earned 3.15% net of (known) fees in FY2015 vs 4.48% for the S&amp;P 500 in the same time period. Taxpayers had to cough up $9.9 billion to pay for the shortfall in obligations to pensioners.</p> <p>New York City isn't the only public fund suffering from insufficient disclosure from Wall Street. Last year, the Securities &amp; Exchange Commission found that more than half of 400 private equity firms had overcharged clients.<br /> Photo: Philip</p> <p>&nbsp;</p> <p>&nbsp;</p>
The yanks are coming as European banks re-trench
Capital Markets
<p>&nbsp;</p> <p>News comes from Europe almost every day that suggests European banking is changing fairly radically. The change is being driven by an entirely new political climate.</p> <p>For as many years as I have studied banks (going on half a century now), European governments have coddled their banks and used them as props for establishment politicians and their supporters. As part of that system, sovereigns have in practice guaranteed the liabilities of their banks and regulators have gone easy on capital requirements. Circularly, the banks also have financed the sovereigns.</p> <p>Basel I (adopted in 1988) supposedly required 8% capital, but the definition of risk-weighted assets allowed, by design, very low capital ratios against gross assets. Basel II (implemented in Europe in 2002) was designed by the banks to fool the regulators; it was embraced wholeheartedly by big banks everywhere; and it played a role in stoking the real estate booms of 2003-2006 that caused the busts of 2007-2009. (European banks played a significant role in the U.S. boom as well as the Irish, Spanish and English incidents.)</p> <p>European governments finally have got the message that guaranteeing the nation’s banks’ creditors can be dangerous to the nation’s financial health. See Ireland (contrast Iceland), Spain, Belgium, Greece, Cyprus, for examples. That gradual recognition led to adoption of Basel III (2010 but still being implemented gradually), which imposes the first real capital requirements on European banks. Now governments have recognized that banks need to have capital in order to survive when economic times get tough. And that has led to the ECB becoming the euro area regulator of large banks and to the ECB applying stress tests to bank capital.</p> <p>Evaluating bank capital on a forward-looking basis (which is what stress tests do) makes “all the difference”, as Robert Frost said about taking the road less traveled. A forward look at capital that includes a significant recession shows which bank activities are likely to lead to losses. Tested banks then must either curtail those activities or keep more capital against them.</p> <p>When banks see the amount of capital that an activity really needs, they typically find that their internal allocations have been made with rose-colored glasses. Therefore we see Deutsche Bank, Barclay’s, the Swiss banks, and many others reevaluating their business plans and changing their managements, hopefully to find managers who are capable in the new world of capital and technology.</p> <p>Yes, I just threw in technology, as anyone reading about Deutsche would have to do. Both the need for management to understand technology better and the need to allocate capital more realistically require entirely different mindsets from those that have prevailed in most European banks. Indeed, until recently, in most U.S. banks as well. I recall a fairly large bank CEO asking a few friends (of whom I was one) what he should be investing in—this was about 15 years ago. I said software. He pooh-poohed that idea. Marketing was what interested him. Market share was what interested him.</p> <p>What will these changes mean for Europe’s economy? My guess is that stress-tested banks that must have real capital are going to be more cautious lenders. That means the capital markets will have to become more robust—and it is the American banks are best positioned to lead those capital markets.<br /> Photo: WordShore</p>
China foreign reserve boost allays yuan depreciation fears
Capital Markets
<p>It appears that fears of an increasingly devaluing Chinese yuan could be dying down – for now. </p> <p>The Wall Street Journal reports that China's five-month run of capital outflows came to a sudden halt this week with news that the country's foreign-exchange reserves swelled in October – by $11.39 billion to $3.526 trillion – helping shore up its currency. Capital Economics economist Julian Evans-Pritchard told the Wall Street Journal:<br /> “We think these outflows are now reversing because market expectations for significant [yuan] depreciation have now eased after PBOC (People’s Bank of China) intervention helped stabilize the currency and expectations for U.S. rate hikes have been pushed back.”<br /> However, recent statements from the U.S. Federal Reserve have already made it seem more likely a hike will take place in December, potentially triggering more outflows, or at least the need for more intervention from the PBOC.</p> <p>Photo: Karl Baron</p>
China and Taiwan: A tale of two press conferences
Capital Markets
<p>If China and Taiwan’s historic meetup in Singapore has taught us anything it’s that Beijing is as fightened of Taiwan's free speech as Taipei is of China's missiles. </p> <p>Quartz points out that while the countries share a language, history, and economic interests, a big difference could be seen in how each approached the political press conferences that followed back in their respective territories. </p> <p>As Taiwan’s democratically-elected president Ma Ying-jeou fielded several awkward questions from the country's free press – mostly about Chinese missiles aimed at Taiwan – China’s Xi Jinping offered a prepared statement and answered just three scripted questions from press outlets sympathetic to Beijing. </p> <p>What’s more, mainland broadcaster CCTV offered only edited highlights of the Taiwan conference, lest viewers be exposed to anything more explosive than a Chinese ballistic.<br /> Photo: Jennifer Moo</p> <p>&nbsp;</p> <p>&nbsp;</p>
The Week Ahead: Eurogroup meeting looms, China and Japan release trade data
Capital Markets
<p>As the week kicks off all eyes will be on Brussels as Monday evening's Eurogroup Meeting gets underway. Eurozone finance ministers are expected to approve the disbursement of a first sub-installment of 2 billion euros to Greece. The European Central Bank’s (ECB) Mario Draghi will also speak on Wednesday, hopefully shedding more light on how the ECB will step up its stimulus program. </p> <p>With the Federal Reserve’s December interest rate hike looking all but certain, investors will also be focused on the deluge of country data coming out this week.  China, Japan, and Germany will all be releasing trade balance data, while important jobs data will be coming out of the U.S. and the U.K. </p> <p>Here’s what you should expect this week:</p> <p>&nbsp;</p> <p>Monday, November 9 </p> <p>08:30 Australia ANZ Job advertisement (Nov, MoM) – Previous: 3.9%</p> <p>15:00 Germany Trade Balance (Sep) – Forecast: 15.3bn ;Previous: 21bn</p> <p>22:00 Eurogroup Meeting </p> <p>23:00 U.S. Labor Market Conditions Index</p> <p>&nbsp;</p> <p>Tuesday, November 10</p> <p>&nbsp;</p> <p>07:00 China Exports (Oct, YoY) – Previous: -3.7%; Forecast: -3.2%</p> <p>07:00 China Trade Balance (Oct) – Previous: 60.34bn; Forecast: 62.17bn</p> <p>07:00 China Imports (Oct, YoY) – Previous: -20.4%; Forecast: -15.2%</p> <p>07:00 India Exports (Oct, YoY) – Previous: -24.3%</p> <p>07:50 Japan Current Account (Sep) – Previous: 1653.1bn; Forecast: 2180.1bn </p> <p>07:50 Japan Trade Balance, BOP Basis – Previous: -326.1bn; Forecast: 82bn </p> <p>09:30 China CPI (Oct, YoY) – Previous: 1.6%; Forecast: 1.5% </p> <p>23:00 Import Price Index (Oct, MoM0 – Previous: -0.1%; Forecast: 0.1%</p> <p>&nbsp;</p> <p>Wednesday, November 11 </p> <p>07:30 Australia Westpac Consumer Confidence (Nov. MoM) – Previous: 4.2%</p> <p>13:30 China Industrial Production (Oct, YoY) – Previous: 5.7%; Forecast: 5.8%</p> <p>17:30 U.K. unemployment Rate 3m (Sep) – Forecast: 5.4% (unchanged) </p> <p>17:30 Jobless Claims Change (Oct) – Previous: 2k; Forecast: 4.6k</p> <p>21:15 ECB’s Draghi Speaks</p> <p>&nbsp;</p> <p>&nbsp;</p> <p>Thursday, November 12 </p> <p>08:30 Australia Employment Change (Oct) – Previous: -5.1k; Forecast: 15k </p> <p>08:30 Australia Unemployment Rate (Oct) – Forecast: 6.2% (unchanged)  </p> <p>15:00 Germany CPI (Oct, MoM)</p> <p>15:00 Germany CPI (Oct, YoY) – Forecast: 0.3% (unchanged)</p> <p>18:00 Europe Industrial Production (Sep, MoM) – Previous: -0.5%; Forecast: -0.1%  </p> <p>18:00 Europe Industrial Production (Sep, YoY) – Previous: -0.9%; Forecast: 1.3%</p> <p>21:30 U.S. Initial Jobless Claims (Nov) – Previous: 276k</p> <p>23:00 U.S. JOLTS Jobs Openings (Sep) – Previous 5.37m</p> <p>23:15 Fed’s Evans Speaks</p> <p>Friday, November 13 </p> <p>01:15 Fed’s Dudley Speaks </p> <p>03:00 U.S. Monthly Budget Statement (Oct) – Previous: 91.1b; Forecast: -130b</p> <p>12:30 Japan Industrial Production (Sep, MoM) – Previous: 1%</p> <p>15:00 Germany GDP (3Q, QoQ) – Previous: 0.4%; Forecast: 0.3%</p> <p>15:00 Germany GDP (3Q, YoY) – Previous: 1.6%</p> <p>18:00 Europe GDP (3Q, QoQ) – Forecast: 0.4% (unchanged)</p> <p>18:00 Europe GDP (3Q, YoY) – Previous: 1.5%; Forecast: 1.7%</p> <p>21:30 U.S. Retail Sales (Oct, MoM) – Previous: 0.1%; Forecast: 0.3%</p> <p>23:00 U.S. UoM Confidence Preliminary – Previous: 90; Forecast: 91</p> <p>&nbsp;<br /> Photo: European Parliament</p>
Barron's Weekend Roundup: GM has 40% growth potential
Capital Markets
<p>&nbsp;</p> <p>General Motors is rolling strong. GM's third quarter earnings beat expectations, but the stock is only up 2% this year, reports Barron's. Across the U.S. car sales have been on the rise, and GM has been able to cut costs with more efficient manufacturing. The stock has potential to grow by 40%, Barron's argues.</p> <p>Platform Specialty Products is looking for a rebound with the help of high profile investors, including Bill Ackman. Platform, which went public in 2014, has seen its shares drop 60% since June. But the stock could rebound in the next 12 months, reports Barron's. The firm has closed four acquisitions and has lined up two more deals.</p> <p>&nbsp;<br /> Photo: jm3 on Flickr<br /> &nbsp;</p>
Cartier losing its sparkle as watch sales, Asia sag
Capital Markets
<p>Richemont, the parent company of jewelry maker Cartier, found itself adorned in some less-than-fine figures this week, reporting weaker than expected sales in China. The company further said it expected the market to remain "challenging" for the rest of the year. The stock sank 6% Friday.</p> <p>The firm is not alone, reports This is Money. Luxury conglomerates LVMH and Kering have also struggled in Hong Kong and China, thanks to stock market volatility and China's anti-bribery crackdown. </p> <p>Also weighing on Richemont: The head of its Cartier division, Stanislas de Quercize, has left for personal reasons. He will remain on the group board.<br /> Photo: Steve Jurvetson<br /> &nbsp;</p>
Weekend Scan: China, Taiwan leaders begin historic talks; Asian confidence sags
Capital Markets
<p>It was a good week for markets in China and Japan if not elsewhere. Mainland shares regained momentum this week, crossing into a bull market, and Japanese shares hit two-month highs as the country saw its biggest privatization in decades with Japan Post's triple-barrell listing.</p> <p>But markets in other parts of Asia were unable to replicate the upward climb enjoyed in October. Instead, November's first week saw investors focus on country specific news, while the strengthened prospect of a U.S. interest rate hike in December further battered confidence in emerging markets.</p> <p>Now U.S. jobs data has beaten forcasts, sending the dollar soaring, a Federal Reserve rate hike is looking more likely than ever. Meanwhile, the Japan Post IPO euphoria has already started wearing off in Japan. We can expect a rougher start all round come Monday.</p> <p>Here is what else you need to know:</p> <p>China and Taiwan's leaders meet for the first time... and they shook hands! China's President Xi Jinping and Taiwan's President Ma Ying-jeou began their historic meeting on Saturday, shaking hands as they met. It's the first cross-Taiwan Strait summit since a civil war divided the two sides in 1949. Nikkei</p> <p>Myanmar goes to the polls for historic election. The country is entering the final stretch of campaigning before Sunday’s parliamentary elections. It's only the third credible democratic elections since Myanmar gained independence from Britain in 1948. The New York Times<br /> U.S. jobs data raises prospects of rate rise. Expectations of a rise in U.S. interest rates in December have soared following a stronger-than-expected jobs report. The U.S. economy added 271,000 jobs in October, far exceeding the 185,000 jobs that economists had forecast.<br /> President Obama rejects Keystone XL Pipeline. After a more than seven-year battle, environmentalists won out against oil companies, as Obama officially rejected the pipeline from Canada. "The pipeline would not make a meaningful long-term contribution to our economy," Obama said. Reuters</p> <p>Russia halts flights to Egypt amid widened probe into Sinai crash.  Reversing its earlier position, the Kremlin on Friday announced that it would suspend flights to Egypt in a growing consensus with Western officials that a bomb may have caused a Russian passenger jet to crash over Egypt’s Sinai Peninsula last weekend. The Washington Post</p> <p>Brazilian village destroyed in minutes by dam deluge. Residents of the Brazilian village of Bento Rodrigues had about 25 minutes to escape when a dam holding waste water from the nearby Samarco mine in Minas Gerais state broke, sending torrents rushing down into the valley. Reuters</p> <p>Anonymous outs KKK sympathizers. A list of alleged Ku Klux Klan members was released earlier in the week, but the list turned out to be fake. The hacking group released more data about KKK sympathizers, calling it a "form of resistance" against racial violence. The Thursday list has social media profiles of people in KKK-related Facebook and Google+ groups. BBC<br /> You won’t believe this:<br /> Gangnam Style statue built in Seoul. The metal sculpture will be placed in the district made famous by the song. The statue shows two fists overlapped in the style of the song's "horse-riding" dance move. BBC</p> <p>Transgender tree could be the oldest in world. Botanists are arguing over whether the perhaps-5,000-year-old Fortingall Yew, which stands in  a churchyard in Perthshire, Scotland, is Europe’s oldest tree. But it is now certainly Europe’s oldest transsexual. Yew couldn't make it up. Economist</p> <p>Cry your eyes out. U.K. retailer John Lewis has released its annual holiday commercial, this year featuring a lonely old man on the moon. As with every other year, have a box of tissues ready for this tear jerker.</p> <p>&nbsp;</p> <p>&nbsp;<br /> Photo: Jennifer</p> <p>&nbsp;</p> <p>&nbsp;</p> <p>&nbsp;</p>