|Bid||0.00 x 800|
|Ask||217.99 x 1400|
|Day's Range||215.43 - 219.15|
|52 Week Range||129.26 - 223.82|
|Beta (3Y Monthly)||1.24|
|PE Ratio (TTM)||31.95|
|Forward Dividend & Yield||2.00 (0.92%)|
|1y Target Est||N/A|
(Bloomberg Opinion) -- The global stock market drifted lower on Monday, posting its biggest decline in more than three weeks. Yes, there’s still plenty of time for equities to recover and gain for a sixth consecutive week, which would match their longest winning streak since they advanced for 10 consecutive weeks over the course of late 2017 and early 2018. But doing so may hinge on a critical event Tuesday. Even with the modest decline, the MSCI All-Country World Index is still up 19% this year. The surge in recent weeks is due largely to optimism that the U.S. and China are close to reaching an agreement on “phase one” of a broad trade deal. It doesn’t matter that the details are likely to be modest; what matters is that it would signal that the trade war isn’t worsening. That’s why President Donald Trump’s address to the Economic Club of New York on Tuesday is so critical. No one is quite sure which Trump will show up. Will it be the one who in recent weeks has trumpeted progress in trade talks, or will it be the one who has said that the U.S. hasn’t agreed to a rollback of tariffs on China, which is what the markets truly want? This is no small matter for investors. Various surveys have shown that trade uncertainty is the primary risk facing markets. In that sense, whatever Trump says on Tuesday has the potential to either ratify the rally or bolster the case that it’s built on little more than hope. And as everyone in markets learns on their first day in the business, hope isn’t a strategy. “Markets have been skittish waiting for any concrete information about the trade talks,” Matt Forester, the chief investment officer at BNY Mellon’s Lockwood Advisors, told Bloomberg News. At 15 times forecast earnings for the following year, the MSCI is trading at its most expensive level since the start of 2018.Trump’s talk is not the only big event for markets this week. Federal Reserve Chairman Jerome Powell will address the Joint Economic Committee of Congress on Wednesday, the same day as the start of public impeachment hearings against Trump. The U.S. Labor Department will also provide an update on inflation for October. The week ends with data on U.S. retail sales for October, which economists hope will be a reversal from September’s big miss to the downside. But as already stated, hope has no place in markets.THE BOND GAME ISN’T OVER YETThe bad news for the bond market is that November isn’t even halfway over and it’s already the worst month for fixed-income investors since April 2018, with the Bloomberg Barclays Global Aggregate Index down 1.40% as of Friday. The good news is that there’s plenty of time for the bond market to rebound. And just as with the stock market, Trump’s appearance at Economic Club of New York — along with Powell’s testimony — may determine whether the recent sell-off in fixed-income assets is overdone. That’s the short-run prognosis. In a nod to John Maynard Keynes, bonds are dead in the long run anyway. Well, at least according to Moody’s Investors Service they are. The credit ratings company put out a research report Monday saying the rising tide of populism spreading round the world has caused it to turn “negative” on global sovereign credit for 2020. Unpredictable domestic and geopolitical risks along with a push for populist policies that weaken institutions, help slow growth and boost the risk of economic and financial shocks means governments will struggle to address credit challenges, Moody’s wrote. That’s scary, but the major ratings companies aren’t known for their astute political science observations. Yields on 10-year Treasury notes are lower now than when S&P Global Ratings stripped the U.S. of its AAA rating in August 2011.GO BIG OR GO HOMEThe thing about bond sell-offs in recent years is that have tended to be short-lived, thanks largely to central banks. The collective balance sheet assets of the Fed, European Central Bank, Bank of Japan and Bank of England rose to 35.7% of their countries’ total gross domestic product in October from about 10% before the financial crisis, according to data compiled by Bloomberg. And judging by some of the latest moves made by the ECB, bond traders can be a little less worried about a lack of buyers. The ECB started its second round of corporate bond purchases by acquiring in a week an amount that analysts expected it to buy in a month, according to Bloomberg News’s Tasos Vossos. The central bank bought almost 2.8 billion euros ($3 billion) of company debt securities in the week to Nov. 8, according to data released Monday. It was the second-largest weekly purchase figure since the ECB first adopted the strategy, known as quantitative easing, in June 2016. The bank suspended the program last December and restarted it at the beginning of this month as growth flagged across the euro area. It’s unknown whether the faster pace of purchases is in response to the big drop in bond prices and corresponding jump in yields, but it should be comforting to know that the ECB is doing its part to stem the weakness.CHILE GIVES INIt’s becoming routine to see the Chilean peso leading the list of biggest losers in the foreign-exchange market on any given day, and Monday was no exception. The peso weakened 1.72% to a record low, bringing its depreciation since Oct. 18 to 6.39%. To put that into context, the next biggest loser among the 31 major currencies tracked by Bloomberg, the Argentine peso, has dropped just 2.48%. It’s well known by now that the populist movement that Moody’s warned about on Monday has erupted in Chile, where a wave of protests has disrupted the economy and government. The latest move lower in the peso came as the administration of President Sebastian Pinera said it would overhaul the constitution drawn up during the dictatorship of Augusto Pinochet to calm three weeks of mass protests. So why did the peso and Chile’s equity market, which fell 1.52%, take it so harshly? Many people regard the constitution, drawn up under the dictatorship of Pinochet, as the foundation of an economic system that privatized pensions and much of health care and education, a chief grievance of protesters, according to Bloomberg News’s Javiera Baeza and Eduardo Thomson. It also enshrined the strict legal safeguards to private property that are behind Chile’s water privatization, a controversial subject in a country struggling with severe droughts.NATURAL GAS STUMBLESThe natural gas market cares little about trade wars or populism. To traders there, it’s all about the weather. Natural gas futures slid the most since January as forecasts showed that a cold snap descending on the U.S. would peter out by the end of the month, curbing demand at the time of year when consumption of the heating gas usually surges, according to Bloomberg News’s Christine Buurma and Naureen S. Malik. Gas was the worst-performing major commodity Monday, tumbling as much as 6.1%. Temperatures will probably be mostly normal in the eastern half of the country Nov. 21 through Nov. 25 as an autumn chill fades, according to Commodity Weather Group LLC. Beyond the weather, the slide in natural gas underscores how record production from shale basins continues to weigh on the market even as exports soar and the power industry becomes more reliant on the fuel. Without a sustained Arctic chill this winter, stockpiles will remain above normal for the time of year, pressuring prices lower, according to Buurma and Malik. As they point out, hedge funds are adding to the bearish momentum, holding the largest short position since 2015 for the time of year.TEA LEAVESWhen the National Federation of Independent Business said a month ago that its small-business sentiment index for September fell to near the lowest level of Trump’s presidency, it noted that the part of the gauge measuring “uncertainty” plunged to its lowest since February 2016. “More owners are unable to make a statement confidently, good or bad, about the future of economic conditions,” the group said, with 30% of respondents reporting “negative effects” from tariffs. Don’t expect much improvement when the group provides an update on Tuesday. The median estimate of economists surveyed by Bloomberg is for a reading of 102 for October, little changed from 101.8 in September. Bloomberg Economics points out that small-business activity has been moderating since the last report. Most notably, the ADP private employment survey indicated recently that net hiring has shrunk to half the pace that prevailed last year, to the slowest since 2011.DON’T MISS Buying Stocks at Records Works Until It Doesn’t: Robert Burgess Investors’ Global Turn Depends on Policy Hopes: Mohamed El-Erian Delaying the IPO Process Weakens Capitalism: Stacey Cunningham U.S. Economy Has Recovered, But Labor Market Hasn’t: Karl Smith The 2020 Economy Should Feel a Lot Better Than 2019: Conor SenTo contact the author of this story: Robert Burgess at firstname.lastname@example.orgTo contact the editor responsible for this story: Daniel Niemi at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Robert Burgess is an editor for Bloomberg Opinion. He is the former global executive editor in charge of financial markets for Bloomberg News. As managing editor, he led the company’s news coverage of credit markets during the global financial crisis.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
Piedmont Office Realty's (PDM) diversified portfolio of office properties in notable central business districts, strong operating performance and large unencumbered asset base impresses Moody's.
(Bloomberg Opinion) -- Over the weekend, India’s Supreme Court pronounced on a title dispute in Ayodhya, a small town in India’s northern state of Uttar Pradesh. Like many other property cases in India, this one had been working its way through the judicial system for decades. But it may be the most consequential such dispute in Indian history.Millions of Hindus believe Ayodhya was the capital of Ram, an avatar of Vishnu and hero of the epic Ramayana, and the dispute was over rights to the site where Hindus say a 16th century mosque was built over Ram’s birthplace. Reversing a lower court’s order that the area be divided between the two sides, judges awarded it entirely to the Hindu applicants, while saying Muslims must be compensated with land elsewhere.The dispute is inextricably entwined with national politics and the status of Indian secularism. It exploded into the national consciousness in the 1980s and early 1990s, when both the then-ruling Indian National Congress party and today’s ruling Bharatiya Janata Party laid claim to Ram’s heritage. Congress Prime Minister Rajiv Gandhi had the locks on the mosque broken open and began an election campaign from the town.Meanwhile, BJP leaders launched a nationwide “rath yatra” -- a pilgrimage in a bus decked out to look like a chariot -- intending to gather support for replacing the mosque with a Hindu temple. (One of the local organizers of the rath yatra was a young man named Narendra Modi.) Finally, amid the escalating tensions, a mob of Hindu activists physically demolished the medieval mosque in 1992 as the state police -- controlled by the local BJP administration -- stood by or ran away. That defiant act of violence marked the beginning of the long rise of the BJP to absolute power in India.Today, after the Supreme Court awarded the BJP-run central government the right to set up a trust to administer the process of Hindu worship at this long-disputed site, it is worth noting how effectively and efficiently Modi’s party has moved forward on the core aspects of its ideological agenda. For decades, the Hindu nationalist wing of Indian politics has mobilized around certain key issues: the banning of cow slaughter, the building of a temple at Ayodhya, combating the perceived demographic threat to Hindus from migration or conversion, and denying autonomy to India’s Muslim-majority state of Jammu and Kashmir.On each of these, in just the few months since Modi was reelected as prime minister with an enhanced majority earlier this year, there has been significant progress. A temple will be built at Ayodhya; Kashmir has had its special status revoked; a project to disenfranchise all “foreigners” in the border state of Assam has been concluded and may be extended to the rest of India. A national law effectively banning religious conversion may not be far off, while violence from self-styled “cow protectors” has also been widely publicized.The speed and energy with which the BJP’s social agenda has been implemented stands in sharp contrast to the dilatory and timid approach the government has taken to structural economic reform. When Modi was first elected in 2014, many hoped that he would instead focus on the economy over social issues, as the BJP had done during its previous stint in power in New Delhi (remember the slogan, “build toilets before temples?”).But the Modi government has clearly prioritized foreign affairs and domestic social change. While some major reforms have been introduced, including a new bankruptcy code and a nationwide goods-and-services tax, other long-pending measures that would improve Indian competitiveness have been postponed or avoided. Loss-making or unproductive state-owned companies have not been shut down or sold, for fear of the political fallout. This reluctance to reform has persisted in spite of a dramatic and self-inflicted economic slowdown, reflected last week in Moody’s decision to downgrade the outlook for India to negative.The question is what Modi chooses to do after this victory. With so much progress to tout on the Hindu nationalist agenda, will he now feel he has the political space for bold economic reform? This is what many of those who continue to be optimistic about his tenure argue. And Modi himself continues to frame the government’s social program carefully, as part of the natural and impartial settling of long-pending issues rather than as the beginning of a new radical agenda.But such hopes have been continually raised since 2014 and mostly been disappointed. The only rational conclusion is that Modi and his party feel that remaking Indian society is more important than remaking the economy. Perhaps they have been elected more on the basis of the social issues the BJP has espoused since its founding decades ago than on nebulous hopes of economic progress. Or perhaps they’re just true believers themselves. To contact the author of this story: Mihir Sharma at firstname.lastname@example.orgTo contact the editor responsible for this story: Nisid Hajari at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Mihir Sharma is a Bloomberg Opinion columnist. He was a columnist for the Indian Express and the Business Standard, and he is the author of “Restart: The Last Chance for the Indian Economy.”For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
(Bloomberg) -- Productivity in the U.S. unexpectedly posted the first decline in almost four years and labor costs accelerated, suggesting a pickup in efficiency earlier this year was more of a temporary shift.Nonfarm business employee output per hour decreased at a 0.3% annualized rate in the third quarter, according to Labor Department figures Wednesday. That compared with the median projection for a 0.9% increase in Bloomberg’s survey of economists and followed an upwardly revised 2.5% gain in the second quarter. Unit labor costs rose at a 3.6% rate following 2.4% in the prior period.The decline in productivity resulted from a 2.1% increase in output against a 2.4% rise in hours worked. The Labor Department said self-employed workers “made an unusually large contribution” to the increase in hours worked during the quarter and those particular numbers can be more volatile than for the broader workforce. The number of self-employed Americans had risen from the prior quarter.That increase “likely depressed productivity more than we were anticipating,” said Ryan Sweet, director of real-time economics at Moody’s Analytics. “The trend overall for productivity is still mediocre at best and that suggests that the economy’s potential growth rate hasn’t really changed too much.”While the report partly reflects a deceleration in economic growth during the quarter, it raises questions about whether the Trump administration’s tax cuts -- which took effect last year -- will sustain a pickup in productivity after already showing signs of failing to prop up business investment.The quarterly figures tend to be volatile. But productivity gains have been generally weak during the expansion that began in 2009, and the data may represent a return to this pattern after a relatively strong first half.Broader DebateThere is debate over what has driven the broader slowdown in productivity compared with prior decades. Federal Reserve Chairman Jerome Powell, in a recent speech, suggested several possible reasons, including that official statistics may understate productivity growth by failing to capture the value of fast internet connections and smartphones.Fed Vice Chairman for Supervision Randal Quarles sees new technologies such as artificial intelligence and 3-D printing as having the potential to boost efficiency. Quarles said last week that he was “heartened” by the first-half pickup in productivity growth after years of “abysmal” gains, noting that the trend gave him optimism for the economy’s longer-term potential.From a year earlier, productivity rose 1.4%, down from 1.8% in the prior period. Unit labor costs were up 3.1% year-over-year -- the fastest since early 2014 -- which could be a sign that a tight job market is filtering through to what companies are spending on wages.“That’s going to put some further pressure on corporate profit margins, which already are compressing,” Sweet said. “That could become more problematic for business investment, hiring down the road.”The report showed inflation-adjusted hourly compensation rose at a 1.4% annual pace during the quarter after a 2% increase.(Adds economist’s comments starting in fourth paragraph.)\--With assistance from Kristy Scheuble.To contact the reporter on this story: Reade Pickert in Washington at firstname.lastname@example.orgTo contact the editors responsible for this story: Scott Lanman at email@example.com, Jeff KearnsFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Moody's Investors Service affirms all the ratings of First Horizon (FHN) and its subsidiaries. Moreover, the rating firm's outlook for the bank has been maintained at "stable".
(Bloomberg) -- India won’t back down from collecting $13 billion of past dues from debt-laden telecom carriers because the industry is not under stress, a government official with knowledge of the matter said, a move that could deepen Bharti Airtel Ltd. and Vodafone Idea Ltd.’s financial woes.India expects the carriers to pay up within 90 days as ordered by the Supreme Court last month, the official said, asking not to be identified, as the discussions are private. A panel of top bureaucrats could look at deferred payment plan for some of the dues, the person said.The government’s stand about the health of the industry mirrors comments made by billionaire Mukesh Ambani’s Reliance Jio Infocomm Ltd., which has said it has a “divergent view” from its rivals. High fees, frequent flip-flops and endless tax demands over the years have driven most operators aground. From over 10 operators few years ago, India has just three non-state players left with two of them saddled with a mountain of debt.Vodafone Group Plc’s Indian venture has $14 billion worth of obligations, while Bharti Airtel is rated junk by Moody’s Investors Service. “All telecom operators have asked for requisite help in reducing” the financial stress, Vodafone Idea said last month.The “extraordinary scenario” being shown is “just a machination to extract relief,” Reliance Jio said in a letter to the minister of communications on Oct. 31.Bharti Airtel’s shares fell 3.3% in Mumbai on Wednesday. Vodafone Idea lost 8.3% while Reliance Industries Ltd. slid 0.9%. The benchmark S&P BSE Sensex rose 0.6%.In the latest instance, the court ordered operators to pay dues using a disputed method for calculating the annual adjusted gross revenue, a share of which is paid as license and spectrum fees. It upheld the government’s method that includes income from non-telecom businesses like dividend from income and capital gains from the sale of assets while rejecting a plea to exclude them.Spectrum PaymentStill, the official said the government is working on a plan to reduce the license fee and providing a two-year moratorium on pending spectrum payments. The proposal will be sent to the finance ministry first before it is taken up by the cabinet, the official said, adding that this may happen in the current financial year.The telecom ministry spokesman didn’t immediately respond to requests for a comment.A panel of senior government officials is examining feasibility of deferring payment for airwaves that are due by March 2021 and March 2022 as demanded by telecom companies, a government official told reporters last week. It will also consider the demand for reduction in spectrum usage levies and the Universal Service Obligation Fund charge.On the introduction of 5G airwaves, the official said there will be no delay in auction, which is due this financial year, and that the government isn’t presuming the telecom sector is under stress. The reserve price for 5G spectrum will not be lowered, he said.India has fallen behind China and some other countries in plans to introduce 5G, super fast networks seen as essential to developing factory automation, autonomous driving and other artificial intelligence applications.(Update with share performance in sixth paragraph)To contact the reporter on this story: Ragini Saxena in Mumbai at firstname.lastname@example.orgTo contact the editors responsible for this story: Arijit Ghosh at email@example.com, Unni Krishnan, Sam NagarajanFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Third-quarter EPS season is in the homestretch, with blue-chip Utilities, Financial Services, Consumer and Industrial companies all releasing reports. Through 11/1/2019, Refinitiv reported that 356 S&P 500 companies have now announced 3Q earnings, with 76% coming in above consensus, ahead of the past four-quarters average percentage of 74%. The better-than-expected results have improved the overall forecast for the quarter to a -0.8%, from -3.2% at the start of the reporting season. Our analysts are always on the lookout for companies that raise their outlooks during earnings season. Management’s ability to “raise guidance” can often be a catalyst to strong returns in the quarters ahead. Following are 12 BUY-rated companies in Argus coverage for which management has raised guidance during the current EPS reporting season.
(Bloomberg Opinion) -- Election forecasts that use economic conditions rather than polls of voters suggest that President Donald Trump’s re-election chances are much higher than his abysmal approval rating suggests. Take them with a grain of salt. The U.S. economy is steady overall, but conditions in several battleground states continue to deteriorate — and so will Trump’s chances if those trends persist.The underlying premise of these models is that the economy matters a lot more, and candidates a lot less, than most people think. That’s probably correct. Trump was unpopular with much of the electorate in 2016, and virtually all conventional polls predicted Hillary Clinton would win. By contrast, economy-centric models predicted a Republican victory based on a mini-recession in 2015.The intuition is straightforward: Most voters are not up for grabs and simply support their party’s nominee. The few voters who are genuinely undecided are either unaware of or immune to political rhetoric, and cast their ballot based on what they see in their own lives. That view is dependent on the state of the economy.The flaw in this set of models is that they fail to account for regional variations in the economy. They also tend to focus on a narrow snapshot of conditions or ignore the importance of the Electoral College.So what are the models saying now about the 2020 election? Two look only at the popular vote share between the two major parties. One, by the economist Ray Fair, plugs in the latest economic data to give a sort of horse-race analysis. That shows Trump winning by four percentage points. The other, by Oxford Economics, projects what economic conditions will be in fall 2020 and projects a five-point win for the president.A third model, from Moody’s Analytics, gives a more detailed analysis of the Electoral College vote but relies heavily on such measures as gas prices and the stock market, which can change dramatically. This model currently predicts that Trump could win as many as 351 electoral votes.Again, these models are a valuable addition to pure political polling. That said, a look at trends in crucial battleground states shows the outlook for the president is far murkier. If he is going to retain the White House in 2020, Trump will have to hold on to at least three of six battleground states that he won in 2016: Michigan, Pennsylvania, Wisconsin, Florida, Arizona and North Carolina.In Arizona and Florida, the economy is doing well. Both states have seen job growth over the past year that was significantly higher than the national average. In Florida in particular, job growth has been trending upward.Things are a bit less bright in North Carolina. The latest reading on job growth was strong, but it appears to be an outlier. Overall, North Carolina’s job growth is tracking the national average — declining but strong enough to support the case for re-election. Crucially, while North Carolina’s economy has been traditionally dependent on manufacturing, it has made the transition to finance and technology, areas that are less affected by global trade.It’s in Michigan, Pennsylvania and Wisconsin that real trouble awaits the president. Job growth is not only slower there than the national average, but it is also declining steadily. Those economies are still heavily exposed to trade, in terms of both sales and investment. Just as important, Trump’s razor-thin margins in those states means that he has little room to spare.These economy-centric models are a useful corrective to the view that Trump’s poor polling and the results of the 2018 midterms mean that a Democrat will win the White House in 2020. It would be a mistake, however, to underestimate the president’s weakness on the economy in several crucial battleground states.To contact the author of this story: Karl W. Smith at firstname.lastname@example.orgTo contact the editor responsible for this story: Michael Newman at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Karl W. Smith is a former assistant professor of economics at the University of North Carolina's school of government and founder of the blog Modeled Behavior.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
(Bloomberg Opinion) -- Larry Kudlow, President Donald Trump’s top economic aide, said on Friday that he’s working on a plan to cut taxes for the American middle class that would be announced ahead of the 2020 election.In the eyes of Moody’s Investors Service, several Democratic presidential candidates already have a similar proposal.In a sweeping report on the potential impact of student-loan forgiveness on the U.S. economy and the government’s finances, analysts led by William Foster made this striking statement: “In the near term, we would expect student loan debt cancellation to yield a tax-cut-like stimulus to economic activity.” The idea is that because more than 90% of the debt has been issued or guaranteed by the federal government, lowering or erasing those interest payments is tantamount to slashing taxes owed to ultimately the same source.Even for a subject like student loans that has been poked and prodded from every direction, this framing is novel. But it makes sense that Moody’s, which assesses the creditworthiness of sovereign governments like the U.S., would draw such a parallel between tax cuts and student loan relief as forms of fiscal stimulus. As the analysts noted, universally canceling student debt would barely impact America’s national debt because Treasuries have already been issued to finance the loans. Rather, one issue is that the government would lose the revenue from loan repayments, which amounted to about 0.4% of gross domestic product in 2018.Admittedly, it’s somewhat laughable to call that a concern, given that the nearly $1 trillion U.S. budget deficit is already practically unprecedented for a period outside of recession or wartime. The Trump administration’s 2017 tax cut relied on the assumption that accelerated economic growth would cover lost revenue, yet real GDP growth in the third quarter was 1.9%, Commerce Department data showed last week, the second-slowest annualized pace since Trump was elected. Candidates like Senator Elizabeth Warren of Massachusetts, by contrast, have mostly specified how they plan make up the revenue lost from forgiving student loans (in her case, a wealth tax).A more pressing question about canceling student loans revolves around whether doing so targets the segment of the population that needs the fiscal boost the most. My fellow Bloomberg Opinion columnists have weighed in on this, with Michael R. Strain arguing Warren’s plan helps the well-off, while Noah Smith thinks her income-based repayment plan is a good start and necessary to alleviate the $1.5 trillion debt’s drag on economic growth.Other candidates have proposed a more targeted approach. Mayor Pete Buttigieg of South Bend, Indiana, for instance, has said he would eliminate the debts of students who attended “low-quality, overwhelmingly for-profit programs” that failed the federal gainful employment rules, which were meant to root out higher-education programs that leave graduates with excessive debt relative to their job prospects. Moody’s analysts seem to fall somewhere in between. Here’s the upside of forgiving student loans:“Increased student debt can explain about 20% of the reduction in homeownership rates among young adults between 2005 and 2014, likely a reflection of a student loan borrower's reduced ability to save for a down payment on a home or qualify for a mortgage. Limited savings can also delay the pace of household formation, as the costs of starting a family can be prohibitive without sufficient savings. Meanwhile, high delinquency among student loan borrowers also impairs credit scores, which can further weigh on an individual's ability to access the credit necessary to start a business or purchase a home.”That likely resonates with a lot of young adults. But Moody’s analysts give a nod to Strain’s view on who would get most of the benefits:“The stimulative effect of a total student debt cancellation on the economy will be partially diluted by the relatively high-income levels of the majority of beneficiaries. … Nearly two-thirds of outstanding education debt is held by households in the upper half of the U.S. household income distribution, whose balance sheets are relatively healthy and whose propensity to consume savings from debt relief is lower than for earners on lower rungs of the income distribution.”And to Buttigieg’s point about for-profit colleges in particular:“In 2016, 32% of bachelor’s degree recipients from for-profit institutions had debt loads of $50,000 or more, compared to just 7% and 12% of peers at 4-year public and private nonprofit institutions, respectively. Although for-profit institutions educate less than 10% of U.S. undergraduates and graduates, their students represent nearly one-third of delinquent federal loan borrowers and are twice as likely to have delinquent loans than their counterparts at public and private nonprofit peer institutions.”I’m not in the business of opining on policy proposals. As Moody’s notes, the issues around the “moral hazard” of loan forgiveness are real and deserve to be debated publicly among elected officials.But from my vantage point within financial markets, the concept of student-loan forgiveness as a sort of tax cut is intriguing. Much of the talk among investors lately has centered on the limits of monetary policy and how governments are going to have to step up and do more to keep the economic expansion alive — or to combat the next downturn. I’ve written before that ultra-low bond yields are a sign that markets are begging for infrastructure spending, an oft-cited way to provide a fiscal jolt.Giving today’s young adults the chance to buy homes and start businesses sooner — like previous generations, before college costs exploded — might be an equally effective boost. After all, what good are interest rates at near-record lows to people who don’t take out mortgages or small-business loans? Morgan Stanley, for one, is counting on unshackled millennials and Generation Z to carry the U.S. economy and stock market for years to come.It’s starting to look as if a “tax cut 2.0” will be on the ballot in 2020. While that’s the language of the Republican Party, the Moody’s analysis is a reminder that there’s more than one way to reduce what some Americans owe the government and boost the U.S. economy in the process.To contact the author of this story: Brian Chappatta at firstname.lastname@example.orgTo contact the editor responsible for this story: Daniel Niemi at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
Moody's upgrades ratings for SLM Corporation (SLM) on the back of its strong credit fundamentals and ability to maintain leading position in student loans market.
(Bloomberg) -- Emerging-market stocks rose for a fourth straight week last week and posted the best monthly advance since June, as the Federal Reserve confirmed investors’ expectations of a third-straight interest rate cut. While the U.S. central bank signaled a pause in further easing, appetite for higher yielding assets remained in place as signs of progress in the U.S. and China trade talks left investors more comfortable with taking risk. Developing-nation currencies strengthened for a fifth straight week.The following is a roundup of emerging-markets news and highlights for the week ending Nov. 3.Read here our emerging-market weekly preview, and listen to our weekly podcast here.Highlights:Federal Reserve officials reduced interest rates by a quarter-percentage point for the third time this year and signaled a pause in further cuts unless the economic outlook changes materiallyU.S. consumer spending trailed forecasts in September while weekly applications for unemployment benefits rose more than projected, offering a note of caution on the economyMeanwhile, U.S. hiring was unexpectedly resilient in October and prior months saw sharp upward revisions, validating the Fed’s signal of a pause from interest-rate cutsChina and the U.S. had a constructive conversation and achieved “consensus in principle” in a phone call between Chinese Vice Premier Liu He and U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven MnuchinEarlier in the week, Chinese officials were casting doubts about reaching a comprehensive long-term trade deal with the U.S. even as the two sides get close to signing a “phase one” agreement, while President Donald Trump had said the U.S. was ahead of schedule to sign a very big portion of the China dealCommerce Secretary Wilbur Ross expressed optimism the U.S. would reach a “Phase One” trade deal with China this month and said licenses would be coming “very shortly” for American companies to sell components to Huawei Technologies Co. Trump on Sunday told reporters at the White House that a trade agreement, if one is completed, would be signed somewhere in the U.S.China secured the World Trade Organization’s go-ahead to impose $3.6 billion in sanctions against the U.S., in a case that predates the tariff war but may add a layer of tension to ongoing talksSenator Marco Rubio plans legislation to block U.S. government pensions from investing in Chinese stocks after the board overseeing the funds put off a decision that would add exposure to ChinaHouse Speaker Nancy Pelosi moved the Democrats’ impeachment inquiry of Trump into a new phase that signals the public soon will get a look at the witnesses and evidence being assembled to build a case against the presidentTrump’s presidency stands on its most treacherous ground after the House voted to approve and proceed with its impeachment inquirySouth Africa is heading for a debt trap as bailouts for the embattled state power utility drain the government’s coffers and anemic economic growth weighs on tax revenueFinance Minister Tito Mboweni presented a rapidly deteriorating outlook in his medium-term budget policy statement, with gross government debt seen surging to 80.9% of gross domestic product in the 2028 fiscal year unless urgent action is takenEskom Holdings SOC Ltd. will receive 138 billion rand ($9.2 billion) in bailouts through March 2022, or 10 billion rand more than previously allocatedSouth Africa dodged its third junk rating Friday -- something markets had been counting on for months -- as Moody’s Investors Service maintained the nation’s lowest investment grade score but revised its outlook to negative from stableFitch Ratings raised its outlook for Turkey’s sovereign assessment to stable from negative, citing an improving current account balance, continued economic growth and falling inflationLebanon’s Prime Minister Saad Hariri stepped down Tuesday after two weeks of anti-government protests descended into violenceCalls are mounting for Lebanon to impose formal restrictions on the movement of money to defend the country’s dollar peg and prevent a run on the banks when they open their doors after nationwide protestsThe yield on the nation’s dollar bond due 2021 climbed above 30%Asia:China’s ruling Communist Party warned that internal and external risks were increasing after wrapping up its most important meeting of the yearA gauge of the outlook for the country’s manufacturing sector dropped to the lowest level since February, underlining the weakness of an economy buffeted by weak domestic demand, shrinking profits, and the trade war with the U.S.South Korea’s semiconductor inventories fell the most in more than two years in September, signaling a potential end to a prolonged slump in tech demand that has weighed on global growthSamsung Electronics Co. reported earnings that beat estimatesFOMC rate cut will help maintain global growth trend and have positive impact on the South Korean economy, central bank Senior Deputy Governor Yoon Myun-shik saidExports plunged the most in almost four years while consumer prices failed to rise for a third straight month in October, highlighting continued pain in this Asian bellwether for global tradeThe U.S. won a case against India at the World Trade Organization alleging improper use of export subsidies valued at more than $7 billionIndia’s farmers’ organizations have planned a nationwide protest on Nov. 4 to demand that the government keep agriculture out of a 16-nation trade agreement currently being negotiated in ThailandFiscal deficit for April-September was 6.52 trillion rupees ($92 billion) versus 7 trillion rupees targeted in the budget for the financial year ending March 31India is committed to further improving its people-friendly tax regime, Prime Minister Narendra Modi said, as Asia’s third-largest economy seeks to attract more overseas investment to spur growthThe global slowdown and trade war have created an environment in which “low interest rates for longer” is the new normal, Bank Indonesia Governor Perry Warjiyo said. Separately, Warjiyo said the central bank’s monetary policy will continue to be data dependentIndonesia suspended exports of nickel ore with immediate effect after a planned ban on shipments from the beginning of next year led to a rush to beat the deadlineThe government warned it will revoke export licenses from mining companies that breach rules on shipping nickel ore as it steps up inspections ahead of an export banThe country’s state budget deficit is at 1.7%-1.8% as of September, while the government sees growth at between 5.08% and 5.1% this yearThailand will request a dialogue with the U.S. at the East Asia Summit due in November to regain scrapped trade benefits, Keerati Rushchano, the acting director general of the Department of Foreign Trade, saidPrime Minister Prayuth Chan-Ocha has asked the Foreign Ministry, Labor Ministry and Commerce Ministry to start talks with the U.S. to explain the country’s stance on labor issues as the nation to set up task force to restore trade preferencesThe value of foreign direct investment applications from China doubled during the first nine months of 2019 compared with a year earlierThe current-account balance narrowed in line with the trade surplus on falling gold exportsThe central bank said third-quarter economic growth may be lower than 2.9%Philippines plans to offer prize bonds in November as government seeks to tap liquidity in financial market after central bank’s reserve ratio cuts, Treasurer Rosalia de Leon saidThe Securities and Exchange Commission has asked Bangko Sentral ng Pilipinas to consider setting ceilings on the interest rates and other fees that lending and financing companies may imposeOctober inflation likely 0.5% to 1.3%, according to the central bankTaiwan’s economy in the third quarter grew at the fastest pace since the second quarter of last year as domestic investment and better-than-expected overseas demand helped avoid the worst of the U.S.-China trade warChina’s ban on individual travel to Taiwan could see visitors to the island fall for the first time since the devastating SARS outbreak of 2003. The number of mainlanders traveling to the island plunged 46% in September, according to data from Taiwan’s Tourism BureauThe Financial Supervisory Commission said it is raising the risk-capital charge for insurance firms buying exchange-traded funds that track foreign bonds but are denominated in local currencyThe U.S. Justice Department has struck a deal with fugitive financier Jho Low to recoup almost a billion dollars looted from Malaysian investment fund 1MDBMalaysia maintains claim of $7.5 billion from Goldman Sachs Group Inc. for the bank’s role in arranging bond sales for 1MDB, Finance Minister Lim Guan Eng saidThe country expects its credit rating to remain stable in the near future due to institutional reform, resilient economic growth as well as clear and consistent messaging to investment community, finance minister saidU.S. is unlikely to label the nation a currency manipulator, Finance Minister Lim saidVietnam slapped five-year tariffs on Chinese and South Korean color-coated steel products after domestic producers said unfair pricing from overseas competitors caused them to shut down production linesEMEA:South Africa’s government is talking with potential investors in the state-owned airline in an attempt to ease the continuing burden the company puts on the national budgetMozambique President Filipe Nyusi won a second term by a landslide in the natural-gas-rich nation’s Oct. 15 elections that the main opposition rejected as a “mega fraud”The Kenya National Assembly’s finance committee agreed to support President Uhuru Kenyatta’s decision to reject a bill that sought to retain caps on what banks can charge on loans, paving the way for the removal of a law that cut credit to businessesRussia’s biggest rate cut in two years was well flagged by Governor Elvira Nabiullina, but when it came, the move gave an extra boost to one of the strongest bond rallies in emerging markets this year, driving generic 10-year yields to their lowest since before the 2008 financial crisisFor all their talk about breaking Washington’s dominance, Russia and Turkey are still pretty hooked on the U.S. currency, according to data published by the Bank of RussiaTurkey’s central bank lowered its inflation estimate for the end of this year to 12% from 13.9%, citing a faster-than-expected slowdown in food prices and a stable liraTurkey offered to buy shares in Borsa Istanbul that the European Bank of Reconstruction and Development plans to sell following concerns over a convicted banker’s appointment to lead the benchmark stock exchangeBulgaria’s ruling party held on to the capital city in local elections, fighting off a challenge by the opposition-backed candidateShares in Saudi state oil giant Aramco will start trading on the Middle Eastern country’s stock exchange on Dec. 11, television news channel Al Arabiya reported, without identifying the source for the informationThe energy giant earned $68 billion in the first nine months of the year, cementing its position as the world’s most profitable company, according to people familiar with the figuresSaudi Arabia finally kicked off what could be the world’s biggest initial public offering, revealing potential tax cuts and dividends to lure investorsEgypt said it picked five banks, including JPMorgan Chase & Co. and Citigroup Inc., to manage a new dollar-denominated bond issuance in the 2019-20 fiscal yearA religious ruling in Kuwait against two initial public offerings launched in October is stirring fears that the Gulf state is clamming up at a time its bigger neighbor Saudi Arabia is doing just the opposite, courting investors in anticipation of Saudi Aramco’s IPOLatin America:Argentina’s President-elect Alberto Fernandez has six weeks to put the pieces of his cabinet puzzle together before starting a government that will have no shortage of economic problemsBonds slid after the vote and investors are now watching for the final composition of congress and how that may impact key legislation, including a debt restructuringAurelius Capital Management LP, one of the lead hedge funds that settled a massive litigation over defaulted bonds with Argentina in 2016, made a new claim in New York for $159 million it says the South American nation owes on securities tied to the performance of its economyArgentina lowered the floor on its key interest rate while defending its latest round of capital controls as a way to ease the transition period until Fernandez takes office Dec. 10Fernandez said he will put policies in place to boost manufacturing, including local textile and shoe producersBrazil’s central bank signaled it will stick with the current pace of monetary easing at its next meeting after lowering the key rate by a half point for the third straight time and forecasting inflation below target through 2021Industrial output rose less than expected in September as capital goods production dropped for the fourth straight month, signaling companies are still reluctant to investUnemployment rate unexpectedly held steady in the three months through September amid an increase in the number of people seeking workA Globo report on President Jair Bolsonaro being potentially linked to the murder of a lawmaker in Rio de Janeiro last year was quickly dismissed after prosecutors said that a key statement that supported the accusation was proved wrong during the investigationLower house Speaker Rodrigo Maia said the allegations do not “harm at all” the lower house agendaBolsonaro said he won’t attend the inauguration ceremony for his Argentine counterpart Fernandez in a fresh sign of souring ties between South America’s largest economiesMexico’s gross domestic product rose 0.1% in the third quarter from three months earlier, according to preliminary data -- that’s less than a 0.2% median analyst forecastU.S. companies and trade groups that want lawmakers to approve a new trade pact with Mexico and Canada are making the unusual bet that the impeachment drama in Washington could actually help get the deal through CongressHouse Speaker Nancy Pelosi said the new Nafta deal is the “easiest trade deal that we’ve ever done”Chile’s President Sebastian Pinera fired eight top officials, including the interior, finance and economy ministers, after 10 days of riots, protests and reprisalsMore violence erupted in Chile and dozens of citizens have been partially blinded by rubber projectiles and gas canisters that police and soldiers fired into crowds of protestersMany Chileans are clamoring for a solution that sends shivers down the spine of part of the country’s elite: a new ConstitutionColombia’s central bank defied the emerging market trend for interest rate cuts and left borrowing costs unchanged at its October meetingUruguay’s presidential candidate from the leftist coalition that’s governed the country for almost 15 years faces an uphill battle to win over at least part of the majority of voters who supported right-wing candidates in Sunday’s election before a November runoffTwo people died in clashes over the results of Bolivia’s Oct. 20 election in the latest episode of political violence that’s flared across South AmericaVenezuela gave El Salvadoran diplomats just 48 hours to leave the country after a similar move by El Salvador’s President Nayib Bukele\--With assistance from Selcuk Gokoluk and Carolina Wilson.To contact Bloomberg News staff for this story: Yumi Teso in Bangkok at firstname.lastname@example.org;Netty Ismail in Dubai at email@example.com;Aline Oyamada in Sao Paulo at firstname.lastname@example.orgTo contact the editors responsible for this story: Tomoko Yamazaki at email@example.com, Cormac MullenFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg Opinion) -- China has a standard road map for fixing state-owned giants that have gone off the rails: Create an even more inflated behemoth through a mega-merger, in the hope that the stronger business will be able to prop up the weaker one until the storm blows over.It’s a playbook that’s been followed in steel, shipping, energy and rolling stock — but in the chemicals industry, it’s not working. The country is planning to abandon the long-mooted merger of chemicals giants Sinochem Group Co. and China National Chemical Corp., or ChemChina, the Financial Times reported Thursday, citing people close to the matter it didn’t name. Executives at the two companies had clashed and Sinochem is likely to just buy some of ChemChina’s better assets instead, the newspaper reported.It might seem remarkable that after about three years of will-they-won’t-they rumor, bosses at the two companies can’t get along. After all, both have the same chairman in Frank Ning, a Pittsburgh-educated dealmaker who ran state-owned grain trader Cofco Corp. before being brought into Sinochem in 2016. He was put atop ChemChina after its entrepreneurial boss Ren Jianxin retired last year.Still, it’s not hard to see why calling off the engagement makes sense for Sinochem, which has the better returns and lower debt levels. For ChemChina, with 83.37 billion yuan ($12 billion) of debt maturing next year and a negative 9.98 billion yuan of operating cash flows in the year through June, the prospects look tougher. The two companies have had opposite approaches to making a profit in the fundamentally low-margin business of selling chemicals and fertilizers in a country where the government wants industrial and agricultural costs to be low.Sinochem diversified into real estate and leasing, spinning off the property developer China Jinmao Holdings Group Ltd. and leasing firm Far East Horizon Ltd. into listings in Hong Kong. Jinmao’s net income of 5.2 billion yuan last year isn't far from the 6.5 billion yuan total for Sinochem’s main entity, and the chemicals company has brought in more cash from the business in recent months by selling off a stake to local life insurers.ChemChina took a more globetrotting approach, making a splashy overseas deal for tire maker Pirelli & C. SpA followed by the $46 billion takeover of Swiss agribusiness giant Syngenta AG in 2016, when checkbooks for connected Chinese dealmakers were wide open. As the country has moved toward deleveraging in the years since, that strategy seems to have been its undoing. Net debt more than doubled as a result of the Syngenta deal, overwhelming the ability of the investment to pay for itself. ChemChina’s adjusted debt at the end of 2018 was 10 times Ebitda, according to Moody’s Investors Service, well above figures that would be considered conservative. China’s ambassador to Switzerland in June described the deal as a mistake, an extraordinarily frank assessment from such a figure.Things are likely to come to a head shortly. ChemChina’s 2020 debt maturities alone are equivalent to all the Sinochem debt maturing out to the start of 2029, according to data compiled by Bloomberg. After that there’s another 71.52 billion yuan to deal with in 2021 and 66.48 billion yuan in 2022, the data show.One way around this would be the relisting of Syngenta, which could happen as soon as mid-2020 — but even selling half the business back onto the market at something close to the 2016 takeover price would represent an Alibaba Group Holding Ltd.-size share sale. That’s no easy task in the best of times; and given the signs of a deteriorating global economy there’s no guarantee that ChemChina could pull it off.That could help explain why the company was holding out hope for a merger, but it’s understandable that Sinochem isn’t keen to see its debt blown up by another business. Its net debt at the end of 2018 was about 5.4 times Ebitda — a tolerable number by the standards of state-owned Chinese giants. Adding ChemChina to that total would have pushed the figure up to 7.5 times, far more risky territory.No wonder the chemistry in this deal is lacking.To contact the authors of this story: David Fickling at firstname.lastname@example.orgNisha Gopalan at email@example.comTo contact the editor responsible for this story: Rachel Rosenthal at firstname.lastname@example.orgThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.Nisha Gopalan is a Bloomberg Opinion columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
Return on equity is one of the most popular ways for investors to assess the efficiency of a business before they buy a stock. Return on equity is a measure of profitability relative to shareholder’s equity. ...
(Bloomberg Opinion) -- We’ve been underestimating the stock market all along. There’s been a strong case to be made that this year’s rally — in the face of a slowing economy and stagnant earnings growth — was due solely to the Federal Reserve’s dovish pivot back in January and subsequent interest-rate cuts. But on Wednesday, the S&P 500 Index rose to a new record even though the central bank strongly hinted it sees no reason to ease monetary policy further.The biggest indication that the Fed feels it’s time to pause after reducing its target rate for overnight loans between banks three times since July was the absence in its statement of the phrase that it would “act as appropriate to sustain the expansion.” Those words have been a way of signaling that markets can expect lower rates. So why not a stronger reaction after that phrase was taken out? There are two ways to interpret this: One is that investors know a lot could happen between now and the next monetary policy meeting Dec. 10-11 that could persuade the Fed to lower rates again. The second is that the Fed has provided just the right amount of “insurance” to avoid recession anytime soon. Yes, growth has slowed, but the latest data doesn’t suggest a material worsening in conditions, especially among consumers, which account for more than two-thirds of the economy. That was evident in the government’s report on gross domestic product for the third quarter that was released earlier in the day. It showed the economy expanded at a 1.9% annualized rate, topping forecasts in a Bloomberg survey that called for 1.6% growth. Consumer spending came in at a 2.9% rate, exceeding projections for a 2.6% increase and more than offsetting the biggest drop in business spending since 2015.To be sure, there are still a lot of concerns about equities, starting with valuations. The S&P 500 is now trading at an expensive 20 times earnings, the most since stocks began their steep plunge in last year’s fourth quarter. And Wall Street strategists on average seem reluctant to boost their market forecasts with earnings estimates for this quarter and 2020 starting to come down. The median estimate of about 25 Wall Street strategists surveyed by Bloomberg earlier this month was for the S&P 500 to end the year at 3,000. It finished Wednesday at 3,046.77.BOND TRADERS ARE HAPPYPerhaps an even bigger surprise than stocks was the reaction in the bond market. Although U.S. Treasuries came off their highs for the day, they still ended up with a gain, which means yields fell. Those on benchmark 10-year notes fell 6 basis points, or 0.06 percentage point, to 1.78%. To be sure, those yields had advanced from around 1.53% earlier this month in a sign that bond traders had expected the Fed to signal that this rate cut would be the last unless the economy got noticeably worse. Markets will find out soon enough whether the Fed was right to signal that a pause is warranted; on Friday, the government releases its unemployment report for October and the Institute for Supply Management releases its monthly manufacturing index. The jobs report is forecast to show that businesses added 85,000 workers this month, down from 136,000 in September and one of the weakest readings in years. The ISM index is expected to rise to 49 from 47.8, but that would still leave it below the critical 50 level that marks the dividing line between contraction and expansion. “The uneven nature of the data will keep the discussion of a December rate cut at the Fed fruitful at the very least,” Lindsey Piegza, the chief economist at Stifel Nicolaus in Chicago, wrote in a research note. There was one small sign from the bond market that perhaps the Fed is making a mistake. That’s seen in the yield curve, where the gap between two- and 10-year rates narrowed by about 3 basis points to 17 basis points in a traditional sign that traders anticipate lower growth.CANADA’S CURRENCY WARBank of Canada Governor Stephen Poloz, one of the few major central bankers in the world to resist the push toward easier monetary policy, did what was expected on Wednesday and acknowledged that he’s considering the merits of joining other countries in lowering interest rates. What was unexpected, though, was an explicit mention of the strength of Canada’s dollar in the central bank’s official statement, suggesting to some that policy makers see a weaker currency as key to a stronger economy. It’s rare to see the Bank of Canada single out the so-called loonie. As such, traders pushed the currency lower, making it the biggest loser among its developed-market peers. The Bloomberg Correlated-Weighted Index that tracks the Canada dollar against nine other major currencies fell as much as 0.94% in its biggest drop in a year. Measured by that index, the loonie had advanced about 7.50% this year through Tuesday to its strongest since early 2015, making the gain the biggest of the group. The lower currency is a relief, given that Canada’s economy isn’t exactly going gangbusters. Economists expect growth to slow to 1.5% over the next two years, slightly below potential. The weakness in the currency may not last long. With the Fed lowering its lending benchmark to a range of 1.50% to 1.75%, Canada now has the highest policy rate in the developed world at 1.75%, which could lure foreign capital and therefore prop up the loonie.CHILE’S TRAVAILS Markets are discovering that national protests are hard to stop once they gain momentum. That was made clear in Hong Kong, and now it’s happening in Chile. The nation’s benchmark stock index tumbled more than 3% on Wednesday, bringing its slide since Oct. 18 to about 9% as the biggest social unrest in a generation forced the government to cancel next month’s APEC summit in Santiago. That’s where President Donald Trump was expected to sign a preliminary trade accord with China. (The White House insisted that it would continue to press to finalize the “phase-one” agreement in coming weeks.) Chile’s peso was also a big loser, weakening as much as 3%. The nation’s economy has a reputation for being one of the more stable ones in Latin America in recent years, so in some ways, what’s happening in Chile is a bit unexpected. Any number of strategists have described the weakness in Chilean stocks, bonds and the currency as “overdone.” After all, the protests have their roots in a relatively minor 3% increase in subway fares. Even so, there are now calls for an overhaul of the country’s free-market economy that has produced what Bloomberg News describes as both vast wealth and vast inequality. The Chamber of Commerce warned that retail sales in Santiago probably fell more than 10% in October because of the unrest.SOME DEFICITS STILL MATTERSouth Africa is providing a fresh reminder that state-controlled enterprises are hardly the most efficient way of delivering services to an economy. The nation’s currency tumbled the most in the world on Thursday, and its government bonds also fell after the Finance Ministry released a statement showing that the country’s predominant electricity supplier, Eskom Holdings SOC Ltd., will receive 138 billion rand ($9.4 billion) in bailouts through March 2022, or 10 billion rand more than previously allocated. And that may not be all. The statement warned that extra support may be needed if plans to turn the utility around are delayed. That means South Africa’s government debt will top 70% of gross domestic product in the next three years, compared with a previous projection of 60.2% in 2024, according to Bloomberg News’s Dana El Baltaji and Selcuk Gokoluk. The issue for markets is that South Africa may be in imminent jeopardy of losing its final investment-grade credit rating from one of the three major credit ratings firms. Moody’s Investors Service is due to review South Africa’s Baa3 rating – the lowest investment grade - this week.TEA LEAVESThe U.S. Commerce Department’s first look at third-quarter gross domestic product released on Wednesday reinforced the notion that consumers are buttressing the economy. Consumer spending, the biggest part of the economy, increased at a 2.9% annualized rate and exceeded projections for a 2.6% rise. For businesses, though, nonresidential fixed investment fell the most since late 2015. What we don’t know is whether consumer spending was level throughout the quarter or started off strong before fading at the end. The answer may come Thursday, when the government reports on personal income and spending for September. Spending is forecast to have risen 0.3% last month after increasing 0.1% in August and 0.5% in July. There’s one big reason to be cautious: Two weeks ago the Commerce Department said retail sales for September fell 0.3% in September from the prior month, shocking economists who had forecast a 0.3% increase. DON’T MISS Fed Needs to Do More Than Just Head Off a Recession: Karl Smith Low Rates and Low Inflation? Not on Main Street: Brian Chappatta Could Dollarization Be Argentina’s Salvation?: Mac Margolis Indonesia Does Its Best to Scare Off Investment: David Fickling Authers' Newsletter: Markets' Brief Brexit Calm Is About to EndTo contact the author of this story: Robert Burgess at email@example.comTo contact the editor responsible for this story: Beth Williams at firstname.lastname@example.orgThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Robert Burgess is an editor for Bloomberg Opinion. He is the former global executive editor in charge of financial markets for Bloomberg News. As managing editor, he led the company’s news coverage of credit markets during the global financial crisis.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
(Bloomberg) -- Sign up to our Next Africa newsletter and follow Bloomberg Africa on TwitterThe rand plummeted and bonds extended declines as investors faced the reality of what bailouts for the embattled state power utility will cost South Africa.The currency retreated 2.95%, the most since September and the biggest drop in emerging markets, to 15.05 per dollar as of 10:30 a.m. in New York. The yield on local-currency debt due 2026 jumped 23 basis points to 8.44%.Eskom Holdings SOC Ltd. will receive 138 billion rand ($9.4 billion) in bailouts through March 2022, or 10 billion rand more than previously allocated, according to the medium-term budget policy statement released by Finance Minister Tito Mboweni on Wednesday. He warned that extra support may be needed if plans to turn the loss-making utility around are delayed.That means South Africa’s government debt will top 70% of gross domestic product in the next three years and may continue rising as bailouts for state-owned companies boost spending, according to the National Treasury. The ratio was previously projected to rise to 60.2% in 2024, before decreasing in subsequent years.Ratings RiskWithout plans to contain the fiscal deficit, the nation’s credit ratings may be imperiled. Moody’s Investors Service is due to review South Africa’s score this week and is the only major ratings company to still assess it at investment grade.“This increase in debt under the weight of the Eskom bailouts, together with lingering uncertainty over Eskom debt restructuring and a weaker economic growth outlook means a revision of the rating outlook from Moody’s to negative is a strong possibility,” said Natalie Rivett, a senior emerging-markets analyst at Informa Global Markets in London.A combination of bailouts for government firms, declining economic growth and falling tax revenue will cause the budget deficit to widen to 5.9% of gross domestic product in the fiscal year, according to the budget statement.“The South African rand is traveling back toward the 15 level as the medium-term budget statement compounds investors fears,” said Simon Harvey, a London-based market analyst at Monex Europe Ltd. “Ballooning projected debt-to-GDP levels, increased government support for Eskom and a widening budget deficit don’t bode well for an economy struggling for growth while under the microscope of both foreign investors and rating agencies.”(Updates with currency, bond moves in second paragraph.)\--With assistance from Netty Ismail and Justin Villamil.To contact the reporters on this story: Dana El Baltaji in Dubai at email@example.com;Selcuk Gokoluk in London at firstname.lastname@example.orgTo contact the editors responsible for this story: Justin Carrigan at email@example.com, Alex Nicholson, Carolina WilsonFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Moody's (MCO) delivered earnings and revenue surprises of 8.04% and 4.91%, respectively, for the quarter ended September 2019. Do the numbers hold clues to what lies ahead for the stock?
Postcrisis plan enabled unsolicited ratings, meant to limit bond issuers’ ability to exert influence over ratings firms. Few, if any, such ratings have been published.
(Bloomberg) -- Concern about SoftBank Group Corp.’s massive debt load has reared its head again after the company unveiled a $9.5 billion bailout for WeWork last week, hurting its shares and bonds.While the price tag for SoftBank to rescue the debt-riddled U.S. shared-office startup isn’t seen as big relative to its total investment portfolio, concern is growing about the impact on its leverage. Analysts expect its loan-to-value ratio, a key metric looking at its net interest-bearing debt against the value of investments, to rise as a result of the WeWork acquisition, though they generally see it staying below the company’s target.“This announcement is a fundamental credit negative for SoftBank Group,” wrote Mary Pollock, a senior analyst at CreditSights, in a report. She said the deal will increase SoftBank’s LTV to 22.8%. Son has said he wants to keep that gauge below 25%. The gauge was at 18% as of Friday.SoftBank spokeswoman Hiroe Kotera said, “Our company’s financial policy has not changed.”Separate news also fueled concern about the value of the investment portfolio at billionaire Masayoshi Son’s firm, which could also affect the key LTV ratio. The company is planning to take a writedown to its Vision Fund of at least $5 billion to reflect a plunge in the value of some of its biggest holdings, including WeWork and Uber Technologies Inc., according to people with knowledge of the matter. Read more about that here.Rating companies haven’t changed their debt scores for SoftBank after the WeWork news. Moody’s Investors Service and S&P Global Ratings grade it as junk.The price of SoftBank’s most recent yen notes fell to the lowest since they were issued last month, and the cost to insure its debt against default touched the highest level since January.SoftBank’s shares dropped 6.6% last week, the worst performance in 2 1/2 months. Atul Goyal, an analyst at Jefferies, cut SoftBank to Hold on Friday, one of only two analysts out of 19 tracking the company to confer that rating.“SoftBank would be an interesting stock for gambling purposes as it’s volatile, but I don’t think it’s a stable investment product for fixed-income traders,” said Katsuyuki Tokushima, head of pension research of financial research department at NLI Research Institute.SoftBank is teeing up investments for the successor to its gargantuan Vision Fund. It’s in talks to back a pharmaceutical delivery startup, a company focused on robotic burger-making and a maker of lab-grown meat, according to people with knowledge of the matter. Vision Fund 2 is the next iteration of SoftBank’s first $100 billion fund.(Updates with more background.)To contact the reporter on this story: Ayai Tomisawa in Tokyo at firstname.lastname@example.orgTo contact the editors responsible for this story: Andrew Monahan at email@example.com, Ken McCallumFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.