UBSG.VX - UBS GROUP N

Swiss - Swiss Delayed Price. Currency in CHF
12.55
-0.07 (-0.59%)
At close: 5:35PM CEST
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Previous Close12.62
Open12.68
Bid13.84 x 0
Ask12.59 x 0
Day's Range12.55 - 12.75
52 Week Range12.55 - 12.75
Volume12,388,079
Avg. VolumeN/A
Market CapN/A
Beta (3Y Monthly)N/A
PE Ratio (TTM)N/A
EPS (TTM)N/A
Earnings DateN/A
Forward Dividend & YieldN/A (N/A)
Ex-Dividend DateN/A
1y Target EstN/A
  • Bloomberg1 hour ago

    China Opens Up Financial Sector to More Foreign Investment

    (Bloomberg) -- China opened up its financial sector to more foreign investment as the government said it will take targeted measures to cope with rising risks and challenges facing the industry. Foreign investors can take a stake or control entities including wealth management units of commercial lenders, pension fund managers and currency brokers, the central bank said in a statement on Saturday. The measures were unveiled after a high-level meeting on Friday chaired by Vice Premier Liu He, where policy makers discussed targeted steps to counter rising risks and challenges facing the $44 trillion industry.China, often criticized by U.S. President Donald Trump as a one-sided beneficiary of global commerce, is pressing on with its pledge to welcome more overseas competition in the financial sector. The sheer size of the industry makes it attractive as winning even single-digit market shares would offer sizable profits, but global firms need to navigate an often opaque regulatory environment and take on state-controlled rivals that drive much of China’s economic activity.Other measures announced on Saturday are:Overseas credit ratings companies can rate all bonds listed on the exchange and inter-bank market, and foreign institutions can be lead underwriters in the inter-bank bond marketChina will scrap foreign ownership limits of securities firms, fund firms, life insurers and futures firms in 2020 instead of 2021Foreign insurers can hold more than 25% stake in Chinese insurance asset management companiesChina is removing the entry restriction of 30 years of operating experience for foreign insurance companiesChina will take further steps to make it easier for foreign institutional investors to invest in the inter-bank bond marketForeigners currently hold just 1.6% of the nation’s banking assets and 5.8% of the insurance market, according to Guo Shuqing, China’s chief banking regulator. Authorities have so far approved plans by UBS Group AG, Nomura Holdings Inc. and JPMorgan Chase & Co. to take majority stakes in local securities ventures. JPMorgan said last year it plans to raise its holding to 100% when rules allow.China released figures this week showing growth in the world’s second-largest economy slowed to 6.2% in the second quarter, the weakest pace since at least 1992 when the country began collecting the data.The government will carry out a combination of short-and long-term steps that will take into account both micro and macro factors to boost demand and create new growth drivers, the State Council said in a statement on Saturday. “Complicated” international and domestic issues are posing more challenges currently and for the near future, according to the statement. Chinese trade negotiators have yet to meet with their U.S. counterparts since President Donald Trump and President Xi Jinping agreed to a tentative truce late last month in Japan. Liu, who is leading trade talks for China, spoke with U.S. Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer over the phone this week, but slow progress has raised concerns on how the trade tensions will play out.Policy makers will continue to implement prudent monetary policy while adopting counter-cyclical adjustments in a timely and appropriate manner to ensure reasonable and ample liquidity, according to the State Council statement. The government will also work to resolve liquidity risks of small and medium-sized financial institutions and block contagion and expansion of risks, according to the statement.To contact Bloomberg News staff for this story: Miao Han in Beijing at mhan22@bloomberg.net;Jun Luo in Shanghai at jluo6@bloomberg.net;Yinan Zhao in Beijing at yzhao300@bloomberg.net;Lucille Liu in Beijing at xliu621@bloomberg.net;Yan Zhang in Beijing at yzhang1044@bloomberg.netTo contact the editors responsible for this story: Shamim Adam at sadam2@bloomberg.net, Malcolm ScottFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Asia’s ‘Fort Knox’ Said to Be Up For Sale As Owner Fights Tycoon
    Bloomberg9 hours ago

    Asia’s ‘Fort Knox’ Said to Be Up For Sale As Owner Fights Tycoon

    (Bloomberg) -- Follow Bloomberg on LINE messenger for all the business news and analysis you need.Asia’s “Fort Knox,” a private, maximum-security vault in Singapore, is for sale.Le Freeport, a multistory repository for fine art, precious gems and even JPMorgan Chase & Co.’s stash of gold, has been seeking a buyer since as far back as 2017, so far without success, according to people familiar with the matter. Owner Yves Bouvier, a Swiss art dealer, has been embroiled in a five-year legal brawl with a Russian billionaire and has been selling assets.Opened in 2010 at a cost of about S$100 million ($74 million), the vault sits on a large tract of government land with direct access to the runways of Changi Airport. Formerly known as the Singapore Freeport, the building was heralded as part of the city state’s effort to boost its wealth management industry and become a regional hub for luxury collectibles and bullion trading. For a while, that worked.Bouvier’s dispute with billionaire Dmitry Rybolovlev “brought some unwanted attention to the facility, but overall it remained the focal point of the gold industry in Singapore, both for institutional and for individual clients,” said Joshua Rotbart, who runs a Hong Kong-based logistics firm specializing in precious metals and has used the vault to store clients’ assets since 2010.The climate started to change a few years ago when China’s clampdown on luxury spending and an economic slowdown in the region curbed demand for high-value items, while an exodus by many banks from their physical commodity business from 2014 reduced the need for bullion storage.Losing MoneyThe venture has lost money for about a decade. It reported accumulated losses of S$18.4 million by the end of last year, according to filings to Singapore’s Accounting and Corporate Regulatory Authority.Le Freeport Chief Executive Officer Lincoln Ng recently told at least one tenant that the facility is still for sale, but that its owner hasn’t found a buyer, according to one of the people.In an emailed response to questions about Le Freeport sent via a spokesman, Bouvier declined to comment on whether the business was for sale. He said the “attacks by Mr. Rybolovlev against me in various courts and in the media have had a very negative effect on my business operations worldwide, including on the FreePort in Singapore. Despite this, over the past decade, our vision for the FreePort in Singapore has been proven to be a great success.”CEO Ng also declined to comment on whether Le Freeport is seeking a buyer.The operation has cut rental rates to entice new tenants, said two people familiar with the matter. Anchor tenant Christie’s International took the entire top floor when the building opened for Christie’s Fine Art Storage Services. Asia Freeport Holdings Pte bought the unit last year and renamed it Fine Art Storage Service, staying on as a tenant, a spokesman for Bouvier said.Further RetreatA buyer would inherit an outstanding debt to DBS Group Holdings Ltd., Singapore’s largest bank, which stood at about S$20 million as of last year.Any sale would mark a further retreat for Bouvier from his earlier plan to build a network of freeports in wealthy hotspots around the world. He has said that he abandoned plans to build a Freeport in Shanghai because of the negative publicity from his court case, and in late 2017 he sold his storage and moving company Natural Le Coultre to a French rival, including his minority stake in the Geneva Freeport, the world’s largest. He remains the majority owner of his Luxembourg Freeport.Singapore’s government provided support to the Freeport, with the National Heritage Board and the National Arts Council among the initial shareholders -- though the two entities say they divested in 2011. IE Singapore, a government agency now known as Enterprise Singapore, in 2014 said the facility provided Asia “with its own Fort Knox,” a reference to the U.S. Bullion Depository in Kentucky. The city-state aspired to be a regional gold-trading hub after the government waived goods and service tax on investment-grade bullion in 2012.JPMorgan, one of the world’s largest gold traders, was among the initial customers, keeping precious metals in the vaults since the opening. UBS Group AG, Deutsche Bank AG and Australia & New Zealand Banking Group Ltd. have also stored gold there, though Deutsche Bank said they are no longer customers and ANZ said it has suspended its physical precious metals custody service.Borderless CageAnyone entering Le Freeport has to go through security checks and a body scan before proceeding into a long atrium dominated by a 38 meter-long sculpture of polished steel by Israeli artist Ron Arad called the “Cage without Borders.” The building, designed by Swiss architects Benedicte Montant and Carmelo Stendardo, includes energy-saving features such as vegetation-covered walls to help maintain temperature and humidity levels.Surrounding the atrium are windowless corridors with rows of identical steel doors that house the private suites of the tenants. They include Malca-Amit Global Ltd., which handles logistics for diamonds and gold, art movers Helu-Trans Group and Stamford Cellars, according to Le Freeport’s website.Tenants can have goods delivered to the site directly from planes without having to pay goods and services tax. A special heavy-duty elevator at the rear of the building can transport gold directly to the basement vaults.Secrecy over what was stored in the strongrooms has led to concern about the possible use of the facility for illicit purposes.In 2015, Singapore imposed new obligations to prevent money laundering and terrorism financing on GST-exempt warehouses including those at the Freeport. But a year later, the Paris-based Financial Action Task Force said Singapore’s authorities “did not demonstrate a comprehensive understanding of what activities were being undertaken” in the building.Customs ChecksBouvier said the Singapore operation employs a system “which allows for complete traceability for every item stored.” He said the security and transparency provided by Le Freeport for both clients and authorities has made it the world’s largest facility dedicated to the storage of fine art and high value collectibles.Singapore Customs, which licenses companies storing goods at Le Freeport, said it imposes stringent requirements on the storage of high-value goods such as precious stones, and conducts regular checks at the companies’ warehouses to ensure they comply with regulations. Retail trade and auctions of collectable goods can take place on the premises, and collectors may temporarily move their works to Singapore’s museums for exhibitions without having to pay duties or taxes, subject to prior approval, the customs authority added in an emailed statement.But it’s the events outside of the building which have put the Freeport into the spotlight.Russian art collector Rybolovlev accused Bouvier in early 2015 of overcharging him by about $1 billion for dozens of canvasses by artists including Gustav Klimt and Rene Magritte. Rybolovlev said Bouvier violated fiduciary duties as his broker by deliberately inflating what he said the works cost.Bouvier and his lawyers have argued repeatedly that he was never Rybolovlev’s broker and that the Russian was just a repeat customer willing to pay top prices to secure the artworks.The battle has been playing out in courts in Monaco, Paris, New York, London, Geneva and Singapore, where Bouvier currently lives, forcing him to hire an international team of lawyers to fight his corner. Bouvier told Bloomberg in early 2017 that the battle with Rybolovlev had cost him nearly $1 billion in lost business.(Updates with further details from Singapore Customs in 21st paragraph; an earlier version of this story was corrected to show the top floor has a tenant in 10th paragraph.)To contact the reporters on this story: Chanyaporn Chanjaroen in Singapore at cchanjaroen@bloomberg.net;Hugo Miller in Geneva at hugomiller@bloomberg.net;Ranjeetha Pakiam in Singapore at rpakiam@bloomberg.netTo contact the editors responsible for this story: Marcus Wright at mwright115@bloomberg.net, Adam MajendieFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Financial Timesyesterday

    Ken Costa looks to Saudi Arabia for next big deal 

    When UK chancellor Philip Hammond flew to Saudi Arabia this month to discuss business relations between the two nations, he was accompanied by one of the City’s long-standing veterans, Ken Costa. Describing himself as a “M&A junkie”, Mr Costa has become involved in what could be one of the biggest deals of the century. “If there is an international branch of the listing, the UK will be the place of choice for a global offering,” he said.

  • Financial Timesyesterday

    Fed comes under fire from Wall Street over rate confusion

    The Federal Reserve came under fire from Wall Street for sowing “confusion” in the wake of a market-moving speech by one of its top officials, highlighting the communications challenge facing the US central ...

  • Plant Protein to Become $85 Billion Business in Food Revolution
    Bloomberg2 days ago

    Plant Protein to Become $85 Billion Business in Food Revolution

    (Bloomberg) -- The market for plant-based protein is set to surge over the next decade as part of a technological revolution in agriculture, according to UBS Group AG.“Mock meat was an almost comical fad 20 years ago,” Wayne Gordon, senior Asia-Pacific strategist at UBS Global Wealth Management, said in a 67-page report. “It’s no laughing matter today, given the industry’s meteoric rise in recent years.”Beyond Meat Inc., the vegan burger maker, emerged as this year’s darling in the IPO market, with shares surpassing $200 last month compared with a $25 offering price. UBS predicts the plant-protein market will swell to $85 billion by 2030 from $4.6 billion now, with the broad market for agriculture technology set to expand more than five fold.The ability to create lab-grown food “that replicates meat, fish, eggs and dairy products -- with a lower carbon footprint and without the need to slaughter animals -- is likely to become a commercially viable option in the next decade,” UBS said.Agriculture accounts for 40% of land use, 30% of greenhouse gas emissions and 70% of freshwater consumption, UBS said, citing the United Nations. Biological solutions include vertical farming, lab-grown food and artificial intelligence, the bank said.In 2018, the digital economy reached only 0.3% of agriculture and trailed other industries, UBS said. The figure is poised to surge with technology investment last year up 43% to $16.9 billion from 2017, the bank said, citing AgFunder.In the outlook to 2030, UBS forecast growth of 16% for both smart farming and online food delivery, 13% for seed treatment and 9% for seed science, and “investors should diversify their exposure and own listed and unlisted companies alike.”We’ll Always Eat Meat. But More of It Will Be ‘Meat’: QuickTakeTo contact the reporter on this story: Denitsa Tsekova in New York at dtsekova@bloomberg.netTo contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net, Patrick McKiernanFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Wall Street Touts a Dirt Cheap Way to Bet on Explosive Earnings
    Bloomberg2 days ago

    Wall Street Touts a Dirt Cheap Way to Bet on Explosive Earnings

    (Bloomberg) -- A growing cohort of Wall Street strategists says options traders are underestimating how much stocks will swing this earnings season, opening an opportunity for windfall profits for investors willing to bet on fireworks.Strategies that profit from short-term volatility are near the cheapest in more than a year, according to Macro Risk Advisors. Likewise, Credit Suisse notes that average single-stock volatility for the biggest 100 names in the S&P 500 Index is lower than it was at the start of the last five earnings seasons.Those shops, along with JPMorgan Chase & Co., UBS Group AG and Bank of America Corp. are all recommending that investors seize the opportunity provided by the complacency reflected in the options market.What all these strategists see is an opportunity to scoop up contracts on the cheap that could pay off handsomely if the market consensus is wrong. And there’s good reason to think it may be. The second-quarter earnings reports will reflect the impact of heightened trade tensions between the U.S. and China, economic data showing a mixed picture on the outlook for growth and the fading effect of domestic tax cuts on corporate profits.“The options market is essentially pricing the next few weeks to be a snooze,” Mandy Xu, the chief equity derivatives strategist at Credit Suisse, wrote in a note. “That is a mistake, especially as Q2 earnings will give us the first glimpse into how companies are navigating recent trade and macro headwinds.”Options markets are currently pricing in an average move of 4% for companies announcing earnings, the lowest expected volatility since the second quarter of 2018, according to UBS. In part, that’s because low single-stock realized volatility is suffocating expectations for future swings, Vinay Viswanathan, a derivatives strategist at Macro Risk Advisors, wrote in an email.JPMorgan says the sanguine outlook is off base.“We would be generally biased towards being long single-name volatility into earnings,” JPMorgan strategists including Bram Kaplan wrote. The bank’s favored trades for this reporting period include the purchases of calls on Beyond Meat Inc. and Apple Inc. in anticipation of better than expected results and guidance.UBS strategist Francois Trahan has warned that a large enough decline in forward earnings growth for members of the S&P 500 Index could spell doom for the equity rally -- something that will become evident as corporate America reports results over the next several weeks.“We expect more implied move beats than last quarter” as a result, UBS strategists wrote in a July 14 note.Investors saw an example of that Thursday, when shares of Netflix Inc. dropped as much as 12% after a disappointing earnings report, far exceeding the post-earnings move of less than 8% that options traders had priced in.Low index and single-stock volatility is even prompting some to advocate ditching stocks altogether and loading up on cheap call options ahead of earnings. Credit Suisse’s Xu recommends so-called stock replacement strategies to preserve 2019 portfolio gains without closing the door on further upside.Bank of America strikes a similar chord, pointing to high-quality stocks like Microsoft Corp. and Mastercard Inc. that have become more volatile than the broader market.“We think a more prudent approach is to rent rather than own upside on select high-quality names, given high-quality stocks have become riskier,” strategists at the bank wrote.The weapon of choice at Macro Risk Advisors is an options straddle expiring shortly after earnings are announced, a trade that involves simultaneously buying bullish call options and bearish puts. That renders the strategy indifferent to market direction but highly dependent on volatility. If swings are dramatic enough -- regardless of which way -- the strategy will make money.A so-called “gamma rental” of Twitter Inc. is among MRA’s preferred ideas, a wager that profits if results from competitors Facebook Inc. and Snap Inc. also fuel swings in the micro-blogging social media company’s shares.\--With assistance from Cecile Gutscher.To contact the reporters on this story: Yakob Peterseil in London at ypeterseil@bloomberg.net;Luke Kawa in New York at lkawa@bloomberg.netTo contact the editors responsible for this story: Samuel Potter at spotter33@bloomberg.net, Brendan Walsh, Randall JensenFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Financial Times2 days ago

    The strength of the dollar is not born in the USA

    US growth and bond yields have converged towards those of the rest of the world this year. Neither a dovish Fed nor a currency-focused White House has been able to change its trajectory. are not being scripted in the US but in the rest of the world.

  • Financial Times3 days ago

    Activist Elliott sees value in different endings to the Saga

    Saga, the insurance and travel provider for the over 50s, arguably built its business around a shared customer trait: they’re all hopeless with technology. Hence, Saga has enjoyed “great brand loyalty” for years. Why, then, might activist investor Elliott now seek change at the group?

  • Financial Times3 days ago

    Sterling traders braced for big Brexit swings ahead

    Investors in currency markets are growing increasingly fearful of a chaotic Brexit, piling into contracts which pay out if sterling fluctuates wildly in the run-up to the Halloween deadline. The UK currency ...

  • Financial Times3 days ago

    It is probably too late to stop dangerous global warming

    Few things should make you as optimistic — or as pessimistic — as the rise of renewable energy. In our research at UBS, we estimate that to avoid a dangerous level of global warming, the world would need to commission an asset the size of New Jersey’s Ocean Wind every day for the next 30 years, without missing a day. The first one is that energy efficiency will save the day.

  • China's Weakest Growth on Record Set to Endure Amid Trade War
    Bloomberg5 days ago

    China's Weakest Growth on Record Set to Endure Amid Trade War

    (Bloomberg) -- Sign up for Next China, a weekly email on where the nation stands now and where it's going next.The Chinese economy already has the weakest growth in almost three decades, and it’s set to slow further despite upside surprises in a range of activity indicators released Monday.That’s the conclusion from a close reading of the numbers announced in Beijing, which confirmed that domestic output in the second quarter slowed to a record-low pace of 6.2% from a year earlier. While June retail sales and industrial output beat expectations, as did first-half investment, there’s little evidence that the economy has bottomed out.China’s slowdown will continue to provide the backdrop to re-booted trade negotiations with the U.S. in the months ahead, with economists forecasting a full-year expansion of 6.2% this year and 6.0% next. A more aggressive stance on stimulus could change that, but that’s something Beijing has been leery of for fear of a financial blow-up.“We expect the Chinese authorities to focus on stabilizing domestic growth through policy easing while keeping a close eye on macro leverage,” Oxford Economics senior economist, Tommy Wu wrote in a report. “This will also help offset pressures on exports given tepid global trade and that the existing tariffs between the U.S. and China are unlikely to be lifted anytime soon.”InvestmentThe government has focused on issuing a special-type of off-balance sheet debt to allow local governments to spend on infrastructure without blowing out their budgets. Authorities have issued some 1.19 trillion yuan ($173 billion) of these special bonds in the first half of the year, much higher than the 361 billion yuan in the same period last year.However, economists from UBS AG and JPMorgan Chase Bank argue that about 70% of that debt has been earmarked for land reserves or shanty-town renovation, rather than infrastructure projects -- meaning less multiplying effects along the industrial chain than would otherwise be the case.Zhu Haibin, chief China economist at JP Morgan in Hong Kong estimates that infrastructure investment could accelerate to a year-on-year pace of about 8%, though the outlook is being threatened by the risk of deflation in factory prices.Retail SalesRetail sales growth unexpectedly rose to 9.8% in June, aided by a 17.2% jump in car sales. However, that surge was largely driven by discounts on older car models held by dealers in anticipation of tougher vehicle emission standards. The new policy took effect on July 1 in some regions. A further one-off effect was a round of online retail discounts on June 18 -- dubbed “618.” Both factors suggest the pace is unlikely to be sustained.ExportsChina’s exports remained stable for most of the first half, despite the ongoing trade tensions with the U.S. Imports were subdued and slowed significantly in the second quarter, leading to a widening surplus. In the meantime, the services trade deficit is shrinking. Therefore, net exports contributed more than 20% to the expansion in the first half, outperforming the contribution of investment.Whether a boost from net exports can be expected through the rest of the year is doubtful. Although Chinese negotiators are talking with their U.S. counterparts again, there is no certainty that a deal will be reached to prevent another round of tariff hikes. Exports growth already lost momentum in June.EmploymentEmployment is the top item on policy makers’ agenda. On Monday, National Bureau of Statistics spokesman Mao Shengyong admitted there was “structural pressure” behind the moderate changes to the official jobless rate. With more than 8 million new graduates entering the job market this summer and the manufacturing sector under pressure, rising unemployment may be inevitable.Credit & StimulusSo far, official efforts to underpin the economy have focused on trying to funnel credit to the private sector and small companies, which provide the majority of jobs and output. While there have been signs of success, the government still worries that easy monetary policy isn’t being transmitted correctly. That’s likely to inform what officials do next with regard to stimulus.A fiscal stimulus plan including about two trillion yuan of tax cuts is slowly feeding through into the economy, though is more likely to stabilize rather than fire up consumption.In the meantime, the strong credit growth in June will likely moderate as sales of the local government special bonds approach the annual limit. In addition, tightened financing rules in the property sector could lead to a bigger contraction in off-balance-sheet borrowing such as trust loans.“We continue to see downward pressures to growth in the second half, as prevailing uncertainty around trade policy post G-20 will still weigh on private capex and employment via the confidence channel,” economists including Jenny Zheng and Robin Xing at Morgan Stanley wrote. Expected stimulus measures “could only partly offset growth drags in view of the reactive nature of policy response and the pervasive impact of persistent trade tensions.”To contact Bloomberg News staff for this story: Miao Han in Beijing at mhan22@bloomberg.net;Yinan Zhao in Beijing at yzhao300@bloomberg.net;Kari Lindberg in Hong Kong at klindberg13@bloomberg.netTo contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, James MaygerFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • What Wall Street Banks Say About Fed Rate Cuts This Year
    Bloomberg5 days ago

    What Wall Street Banks Say About Fed Rate Cuts This Year

    (Bloomberg) -- Federal Reserve Chairman Jerome Powell left it all but certain that the U.S. central bank will reduce interest rates this month for the first time in a decade.The debate now is how deep they will cut and what will they do afterward. As the July 30-31 meeting nears, here’s the outlook of some of the world’s biggest banks based on recent research reports.Forecasts range from JPMorgan Chase & Co. and Citigroup predicting a 25 basis point cut to Morgan Stanley forecasting double that amount.Goldman Sachs Group Inc.25 basis point reduction in July25 basis points of cuts in rest of 2019Powell offered a somewhat upbeat baseline view of growth, but nonetheless argued that uncertainty “continues to weigh” on the outlook. In our view, this was a strong signal that the trade truce with China and the strong June jobs reports have not derailed the case for a July rate cut. We increased our odds of a rate cut; for the July meeting, we place the subjective odds of a 25 basis point cut at 75%, a 50 basis point cut at 15% and unchanged policy at 10%. Our modal expectation remains a 25 basis point cut at both the July and September meetings.JPMorgan Chase & Co.25 basis point reduction in July25 basis points of cuts in rest of 2019It is understandable that Chair Powell remained committed to the storyline supporting action in July. The global backdrop remains concerning, as business sentiment continues to deteriorate and the disinflationary headwinds from slowing producer price index growth will weigh on corporate profits through the current quarter at least. Combined, this is damping global capex growth and feeding back to weakness in global industry. While the case for a 50 basis point cut has been undermined, the case for 25 basis point remains firmly in place and we stick with our call. Whether this is followed by 25 basis point in September will be highly data dependent.Morgan Stanley50 basis point reduction in JulyNo further cuts in rest of 2019The global economy has lost significant momentum in the past 12 months and trade tensions linger. This is now filtering through more prominently to the U.S. economy. Risks to the outlook remain skewed to the downside. A non-linear impact to growth could materialize if financial conditions tighten, bringing corporate credit risks to the fore. We therefore see a need to act decisively to protect against uncertainty and downside risks. Hence, we continue to expect a quick and front-loaded adjustment, i.e. 50 basis points cut by the Fed in July.Citigroup Inc.25 basis point reduction in JulyAnother 25 basis point cut expected this year, most likely in SeptemberEvents and data played out as we had expected – particularly the above-consensus June jobs number and benign G-20 outcome. While in our view this has decreased downside risk, that view is clearly not shared by Chair Powell. We are consequently falling in line with consensus and expect a 25 basis point rate cut in July. A 50 basis point cut is a real possibility, but given that even a 25 basis point cut is likely to provoke two or more dissents, 25 basis points may be the compromise policy outcome. Following the July cut we expect one additional 25 basis point cut, most likely in September.Bank of America Corp.25 basis point reduction in July50 basis points of cuts in rest of 2019Fed Chair Powell all but promised that a cut is coming in July. He is unfazed by the recent strong data in the U.S. The challenge is that this may not be a consensus view, making it difficult but not impossible to deliver a 50 basis point cut. For the time being, we should focus nearly as much on key global data as on U.S. indicators.Barclays Plc25 basis points cut in July50 basis points of cuts in rest of 2019Chair Powell’s testimony before the House Financial Service committee was surprisingly dovish. (The) congressional testimony increases our confidence in our forecast for at least a 25 basis point cut in the funds rate at the July Federal Open Market Committee meeting, followed by another 50 basis points in cuts by year end.UBS Group AG50 basis point reduction in JulyNo further cuts in rest of 2019At the June FOMC, Chair Powell was clearly looking to cut rates 50 b.p. at the July meeting. Doing so, in his view, would offset a confidence shock and manage the risks to the outlook. We will receive more data between now and the July 31 policy decision. Those data could mean the chair is not able to sway enough of the committee to a cut. But if Powell remains strongly inclined to cut, the FOMC is likely to show some deference. In light of the strong data, however, a negotiated 25 b.p. cut could be the compromise that emerges.Deutsche Bank AG25 basis point cut in July50 basis points of cuts in rest of 2019Chair Powell’s testimony and the minutes to the June FOMC meeting largely confirmed the Fed’s intention to ease monetary policy at their July 31 meeting. While we continue to expect the Fed to cut 75 bps by year end, we remain of the view that the Fed will ease 25 bps in July, and proceed on a meeting-by-meeting basis as they evaluate the incoming growth and inflation data.(Adds forecast from Deutsche Bank.)To contact the reporters on this story: Simon Kennedy in London at skennedy4@bloomberg.net;Reade Pickert in Washington at epickert@bloomberg.netTo contact the editors responsible for this story: Stephanie Flanders at flanders@bloomberg.net, Alister BullFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Party Mood Sours in Saudi Markets After $20 Billion Bonanza
    Bloomberg5 days ago

    Party Mood Sours in Saudi Markets After $20 Billion Bonanza

    (Bloomberg) -- Investors are starting to tune out the noise of the billions of dollars that flowed into Saudi bonds and stocks in the first half of the year after the kingdom’s upgrade to emerging-market status.While the Saudi government has accelerated the pace of deregulating its capital markets, concerns about the economy’s reliance on oil and escalating tensions in the Persian Gulf are coming back to the fore.The bulk of the estimated $20 billion in inflows from Saudi Arabia’s ascension to two key developing-nation equity indexes would materialize by end-August, according to EFG-Hermes. Meanwhile, the tailwind from its dollar bonds’ inclusion in JPMorgan Chase & Co.’s emerging-market gauges, happening gradually over nine months through September, has largely played out, said Arqaam Capital Ltd.’s Abdul Kadir Hussain.“Once the passive flows subside, courting active investors will be a hard grind,” said M.R. Raghu, the head of research at Kuwait Financial Centre SAK, which manages $3.8 billion. “Foreign investors will perceive Saudi Arabia as a commodity play for some time to come.”Active money managers seek to outperform benchmark indexes by buying and selling securities. By contrast, passive funds track an index.Saudi stocks are also getting more expensive relative to developing-nation equities, with the gap in their estimated price-to-earnings ratios near the widest since 2015. The high valuations are the reason Mark Mobius, a pioneer in emerging-market investing, isn’t joining the party.What’s more, some investors aren’t ready to forgive or forget the murder of columnist Jamal Khashoggi in the Saudi consulate in Istanbul in October.“The Khashoggi incident and the general structure of the rule of law in Saudi Arabia will continue to deter some investors,” said Mobius, who spent three decades at Franklin Templeton Investments before setting up his own firm last year.No LimitThe prospects may not improve much despite regulatory changes in June that are paving the way for foreigners to take controlling stakes in sectors from banking to petrochemicals after Saudi Arabia removed a cap on ownership of publicly traded companies for international strategic investor. Although foreign direct investment more than doubled last year to $3.2 billion, it remains well below the average level of the past decade.“Higher valuations are to some extent justified by the earnings outlook and technicals,” said Michael Bolliger, the Zurich-based head of emerging-market asset allocation at UBS Wealth Management’s chief investment office. “But for this to be sustained, it is crucial that the government keeps up the reform pace and successfully cooperates with the private sector.”Still, Saudi Arabia’s stock market remains under-owned by active emerging-market investors, compared with its Gulf neighbors Qatar and the United Arab Emirates, said Mohamad Al Hajj, a strategist at EFG-Hermes in Dubai.“A pick-up in active inflows, which will likely be selective given valuation levels, would lead to continued net foreign inflows into Saudi going forward,” he said.Saudi Arabia’s bonds have a market value of about $42 billion in JPMorgan’s emerging-market indexes, according to calculations by Arqaam Capital. The debt might be vulnerable to increased swings in U.S. Treasury yields and concerns over global trade tensions and slowing global economic growth in the coming months, said Hussain, the Dubai-based head of fixed-income asset management at Arqaam Capital.The securities have returned more than 11% this year, outperforming the 9.6% gain in emerging markets, according to Bloomberg Barclays indexes.“Risks for the second half are fairly elevated overall,” he said. “We have already had a strong rally in the first six months.”(Updates with comment by EFG-Hermes strategist in 11th, 12th paragraphs.)\--With assistance from Filipe Pacheco.To contact the reporter on this story: Netty Ismail in Dubai at nismail3@bloomberg.netTo contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net, Paul AbelskyFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • China Economy Slips to Record Low Growth
    Bloomberg5 days ago

    China Economy Slips to Record Low Growth

    (Bloomberg) -- China’s economy slowed to the weakest pace since quarterly data began in 1992 amid the ongoing trade standoff with the U.S., while monthly indicators provided signs that a stabilization is emerging.Gross domestic product rose 6.2.% in the April-June period from a year earlier, below the 6.4% expansion in the first quarter. In June, factory output and retail sales growth beat estimates, while investment in the first half of the year also gave further evidence that stimulus measures to curb the slowdown are feeding through.Equity gauges in Shanghai and Hong Kong recouped early losses after the better-than-expected activity data. The offshore yuan was little changed.The slowdown underlines the pressure that Chinese policy makers face as they attempt to negotiate a deal with the U.S. on trade, while the economy takes another step down in the long-term deceleration from the heady expansion of the mid-2000s. Although Chinese negotiators are talking with U.S. counterparts again, there is no certainty that a deal will be reached in time to prevent further economic damage.“We continue to see the second-quarter growth slowing, but I think we are seeing the stabilization,” Wang Tao, chief China economist at UBS AG in Hong Kong, said in an interview with Bloomberg TV. “The central bank needs to be a bit more proactive” going forward with additional reserve-requirement ratio reductions if higher tariffs come in, she said.Net exports contributed to 20.7% to output growth in the first half, down from 22.8% in the first quarter. Trade data released Friday in Beijing detailed the weak end to the second quarter, as exports and imports fell. The surveyed urban jobless rate ticked up to 5.1% from 5.0%.What Bloomberg’s Economists Say“Concerns over global growth slowdown and the persistence of U.S.-China trade war would continue to cloud the economic outlook. In the domestic market, whether the rebound in retail sales growth is sustainable is still uncertain.”David Qu and Qian Wan, Bloomberg EconomicsFor the full note click hereStronger InvestmentFixed asset investment growth in the first half accelerated at private firms, whereas state companies eased back, a further sign that government efforts to funnel cash to the private sector may be bearing fruit.For the manufacturing sector, investment accelerated a notch to 3% in the first half, while infrastructure investment also picked up to 4.1%.Retail SalesBetter-than-expected retail sales data also lend credence to the idea that stability will emerge in the second half of the year. While the data are volatile, faster growth in sales of consumer goods, household appliances and furniture also point to the modest recovery ongoing in the vital property sector.The overall retail sales result was also driven by robust auto sales growth, though with heavy discounts attracting buyers in June economists remain cautious on whether that upturn can be sustained.A fiscal stimulus plan including about two trillion yuan ($291 billion) of tax cuts is slowly feeding through into the economy. The government has stepped up efforts recently, easing the rules for using government debt in some infrastructure projects and pledging to renovate hundreds of thousands of old buildings.“We can take comfort in that the expansionary measures by the government are actually working,"said Mary-Therese Barton, head of emerging market debt at Pictet Asset Management SA, speaking on Bloomberg TV. "So we take a lot of heart in the retail sales data, in particular, and the strength of domestic consumption.”Property OutlookAmid concerns about emerging price bubbles and risks in the financial sector, officials are likely to keep the recovery in the property market tightly controlled. Property development investment slowed for a second month in June, dragging down the growth of newly started property construction and inventory.Until now, China’s leadership is tolerating the continued deceleration in the economy while the official unemployment rate remains low, and monetary policy has remained supportive without flooding the financial system with cash. Further tweaks to cement any nascent stabilization could be announced following a meeting of top leaders this month.“China’s economy in the third quarter may face more downward pressure,” said Larry Hu, head of China economics at Macquarie Securities Ltd. in Hong Kong. “There probably won’t be any obvious policy adjustment in July, but more possibilities of change in the fourth quarter.”(Updates market reaction in third paragraph.)\--With assistance from Tomoko Sato and Wendy Hu.To contact Bloomberg News staff for this story: Miao Han in Beijing at mhan22@bloomberg.net;Kari Lindberg in Hong Kong at klindberg13@bloomberg.net;Yinan Zhao in Beijing at yzhao300@bloomberg.netTo contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, James MaygerFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Financial Times5 days ago

    Austrian rival tries to gazump €3.4bn Osram take-private

    German lighting company Osram said on Monday that it had received an unsolicited takeover approach by a smaller Austrian rival, just days after agreeing a €3.4bn sale to private equity firms Bain Capital and Carlyle. Osram sought to pour cold water on the move by AMS, calling its offer a “non-binding, preliminary expression of interest” and questioning the substantial and yet to be secured financing needed by the Austrian company to pursue a bid. Given that, Osram said its board regarded “the probability of this transaction materialising as rather low”.

  • Beyond the Trade War, China’s Economy Is Struggling to Stabilize
    Bloomberg6 days ago

    Beyond the Trade War, China’s Economy Is Struggling to Stabilize

    (Bloomberg) -- China is grappling with a slowdown that will see output growth slide to the weakest pace in almost three decades this year, as factors far beyond the trade war with the U.S. weigh on the world’s second-largest economy.Gross domestic product is forecast to grow at 6.2% in the second quarter, the slowest in a three-month period since at least 1992. Data due for release Monday morning in Beijing will show whether the downward forces from external demand, deflationary factory prices and contracting manufacturing can be offset by stabilizing investment, brighter consumer sentiment and a rebounding property sector.The chances for those green shoots to hold on and expand into a firmer recovery depend in turn on how well the government’s targeted stimulus policies can lift local production and counteract the trade war’s effects. The U.S. Federal Reserve’s path toward imminent rate cuts is handing China more room to make its own monetary policy easier, just when it needs it.“China’s economy will slow further in the second half as external demand remains the biggest drag, and it’ll likely stabilize from there under policy support,” said Wang Tao, chief China economist at UBS AG in Hong Kong. “The annual growth rate will stay above 6%.”Data released Friday in Beijing confirmed the picture of weak domestic demand, the negative impact of the tariff war -- and the chance that stimulus measures aimed at fostering credit may put a floor under the slowdown. Export growth slowed, imports slumped, while credit expansion held up.As China’s population ages and the economy transitions from the double-digit growth rates of the mid-2000s, policy makers are attempting to manage the path down, while curbing debt and fending off mass industrial unemployment. Those efforts can be seen in three key sectors:InfrastructureHow strongly fixed-asset investment growth can pick up is key. More specifically, infrastructure investment will have to do the heavy lifting, as manufacturers who continue to be pressured by the tariff threats and a fragile global economy are hesitant about new investment.Economists including those at UBS AG, Australia & New Zealand Banking Group Ltd. and Morgan Stanley expect infrastructure investment growth to continue to gradually accelerate this year.A fiscal stimulus plan including about two trillion yuan ($291 billion) of tax cuts is slowly feeding through into the economy. The government has stepped up efforts recently, easing the rules for using government debt in some infrastructure projects and pledging to renovate hundreds of thousands of old buildings. The relaxation of the use of government debt can increase investment by 800 billion yuan to 1 trillion yuan, according to UBS’s Wang.A leading indicator of infrastructure investment -- excavator sales -- was basically flat in June after falling in May. That sign of stabilization “bodes well for investment activity and economic growth over the second half of 2019,” Xing Zhaopeng And Betty Wang at ANZ wrote in a note.What Bloomberg Economists SayThe data due Monday will highlight an economy under continued pressure, with investment likely to remain sluggish and industrial output growth to slow. The most worrying sign from the June trade data released Friday was another month of undershoot in imports, which underscores weakness in domestic demand.\-- Chang Shu and Qian Wan, Bloomberg EconomicsClick here and here for the full notes.Retail SalesChina needs its masses of middle-class consumers to help drag it out of a trade-induced slump. This year though, auto sales and property-related consumption such as home appliances have been among the main drags on weak retail sales, and there aren’t clear signs of recovery yet in those sectors.Passenger-car sales posted the first increase in June in more than a year as dealers offered heavy discounts, yet economists remain cautious on how long the recovery can be sustained. ING Bank NV’s Iris Pang said the auto industry will continue to face challenges from both “technological disruption from the ride hailing apps” such as Didi as well as cyclically slowing growth.PropertyPolicy makers are trying to keep a tight lid on the property sector, always a candidate for runaway asset prices. Property development investment has stayed stable this year, and regulatory curbs mean that growth will stay within bounds.The country’s banking regulator has asked trust companies with fast-growing businesses in the real estate sector to control the pace of expansion and manage risks better, Xinhua News Agency reported. The People’s Bank of China has also requested banks to not lower mortgage rates further, despite easier monetary conditions.In a scenario where the trade war negotiations fall apart and tariffs on all of China’s exports again appear on the horizon, the property and auto sectors will be where policy makers try to buffer the economy, according to Lu Ting, chief China economist at Nomura Ltd. in Hong Kong.“Beijing will likely roll out more real stimulus measures such as cutting purchase tax for passenger cars and forcing major cities to ease auto license quotes,” he said. Earlier stimulus measures that had been mothballed “will likely be put back on the table in the case that U.S.-China trade tensions escalate further.To contact Bloomberg News staff for this story: Yinan Zhao in Beijing at yzhao300@bloomberg.net;Kari Lindberg in Hong Kong at klindberg13@bloomberg.netTo contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, James MaygerFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Financial Times6 days ago

    Human v algorithm: insurers try to cut out the middleman

    No one wakes up in the morning with a burning desire to scrutinise the fine print of an insurance policy, so an agent or financial adviser has often had to do some persuading. Start-ups including Blue in Hong Kong, Beagle Street in the UK and Haven Life and Ladder in the US believe they can convince customers to buy directly, without needing to go through the intermediaries used by most other life insurers around the world.

  • Dollar Reign Set to Finally End for Top Forecasters on Fed Cuts
    Bloomberg8 days ago

    Dollar Reign Set to Finally End for Top Forecasters on Fed Cuts

    (Bloomberg) -- The most accurate currency forecasters see the dollar weakening this year and the euro benefiting, as the U.S. looks set to outpace Europe in monetary policy easing.An eventual resolution to the U.S.-China trade spat will also support the euro’s ascent by 4% to $1.17 at the year-end, according to Kyriakos Pavlou, a senior trader at Eurobank Cyprus, which led Bloomberg’s rankings of predictions for 13 major currencies in the second quarter. His views were echoed by Rabobank International and Julius Baer, who placed second and third on the list, though they see a slower pace of decline for the greenback.The forecasters, speaking before Fed Chair Jerome Powell’s dovish views this week hurt the dollar, think a 18-month bullish run in the greenback might be over soon. Both Rabobank and Julius Baer predict the euro will face some near-term pressure before climbing to $1.15 in 12 months.“While the dollar will dominate throughout the summer it will lose steam when factors such as Fed easing will start kicking in,” said Pavlou, who is single-handedly responsible for Eurobank’s currency calls. “Come September there will be a switch against the euro especially, which will gain strength from the declining interest-rate differentials as the Fed accelerates their rate cuts.”The Cyprus-based firm has been in the top 10 most accurate forecasters for the past five quarters. Pavlou said he relied heavily on technical factors and fundamentals, while adding that timing also needs to be in a forecaster’s favor. He predicted the euro to likely slip to $1.11 over the next few months on an increasingly dovish ECB, before rebounding into the end of the year.On the euro-dollar pair specifically, MPS Capital Services, Ebury and Cinkciarz.pl were the three most accurate forecasters, with MPS seeing the pair ending the fourth quarter at $1.12. The median forecast in the Bloomberg survey sees $1.15 by the end of the year.A gauge of the dollar saw its first monthly decline in five in June, prompting some of Europe’s largest funds such as Amundi and UBS Global Wealth Management to also predict a further deterioration in the greenback’s outlook. Pacific Investment Management Co. said if the Fed’s cut this month was not a one-and-done the dollar could “really roll over.”While the ECB is seen tracking the Fed’s accommodative policy stance, it’s the U.S. central bank that will dominate currency markets given it “has the room to loosen which the ECB doesn’t,” said Julius Baer Senior Economist David Alexander Meier, who is part of a forecasting team headed by David Kohl.“If we see this race to a more dovish stance as kind of a currency war of central banks, then the ECB does not have the same ammunition as the Fed has,” Zurich-based Meier said. “We don’t see too much U.S. dollar upside from here.”A growing number of currency strategists have contemplated whether U.S. President Donald Trump’s quest for a weaker dollar could morph into an actual intervention in the currency market. With trade strife in the background, direct action is a “low but rising risk,” according to Michael Cahill, a strategist at Goldman Sachs Group Inc.Trade Curve BallOf the top three forecasters, Rabobank’s Jane Foley, a 25-year industry veteran, is the most pessimistic on the euro’s near-term prospects. She sees it dropping to $1.10 in the next three months before recovering to $1.12 by the end of 2019, as Europe’s economic outlook is still patchy and trade disputes haven’t gone away.“We do see risk of an escalation,” said Foley, Rabobank’s head of currency strategy. “This is likely to keep investor confidence subdued, which should also be dollar-supportive.”Eurobank’s Pavlou and Julius Baer’s Meier agree that trade is the wildcard here: if it were to take a turn for the worse, they would have to reconsider their calls as investors would flock to the safety of the dollar.“If trade wars were to intensify, that would be the worst case scenario for us which will force us to change our outlook,” said Pavlou, who has more than a decade of experience in financial markets. “Even though global central banks might be preparing for the downside risks, I don’t think they will be ready for a full fledged trade war with additional tariffs.”(Adds details in 6th paragraph.)\--With assistance from Wei Lu.To contact the reporters on this story: Anooja Debnath in London at adebnath@bloomberg.net;Charlotte Ryan in London at cryan147@bloomberg.netTo contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, Neil Chatterjee, William ShawFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Nordstrom Really Needs an Anniversary Sale Win
    Bloomberg8 days ago

    Nordstrom Really Needs an Anniversary Sale Win

    (Bloomberg Opinion) -- If you’ve spent any time in the Instagram fashion bubble recently, you probably know that Nordstrom Inc. is holding a massive promotional event that kicks into high gear on Friday. It’s called the Anniversary Sale, and it’s a weeks-long run of price reductions on new merchandise that the retailer has done a remarkable job of getting the fashion influencer-set to hype.(2)This time around, the deals bonanza represents an especially important test for the department store. Some of it has to do with the timing. Wall Street sentiment has curdled on this chain in recent months. In fact, Nordstrom is the worst-performing stock in the S&P 500 Index year-to-date. (Fellow department store heavyweights Macy’s Inc. and Kohl’s Corp., it should be noted, aren’t far behind.)A particularly sharp drop in share price came after its first-quarter earnings report, which rightly set off alarm bells for investors. Sales sank 3.5% from a year earlier in that period as a result of a raft of missteps: It changed how it distributed rewards to loyalty program members and that didn’t go well; it was out of stock on key beauty items;  and didn’t have the right mix of entry-level and higher-price items in its women’s clothing business.  That pricing issue might be a particular concern. UBS retail analyst Jay Sole wrote in a July research note that, in his recent customer survey, 5% more shoppers said Nordstrom has become more expensive than said so last year. Of course, Nordstrom isn’t aiming to be a discount retailer; weakening price perception would be a worse finding for, say, Kohl’s. But this still represents a risk that Nordstrom is alienating one-time devotees and could fail to attract younger shoppers. The Anniversary Sale, with its bounty of deals, is a good opportunity to chip away at that perception. But I’m going to be watching more than the price tags. It’ll be important to see whether Nordstrom is able to stay in-stock on those entry-price items, as well as particularly trendy ones, through the early days of the sale. I’ll also have an eye out for any website glitches that might frustrate online shoppers. During last year’s event, the company had to apologize for website problems;  the site also had issues the previous year amid the surge in visits. Nordstrom needs to demonstrate it has learned from those mistakes and has invested technology resources appropriately to move past them.Big sale events sometimes can seem meaningless these days, when the likes of Gap Inc. and Macy’s seem to be having a promotion practically every day of the week. And another splashy deals event – Amazon.com Inc.’s  coming Prime Day – seems to be taking up quite a lot of retail-industry oxygen.But the Anniversary Sale really matters for Nordstrom. The company indicated as much in its annual report:“Due to our Anniversary Sale in July and the holidays in the fourth quarter, our sales are typically higher in the second and fourth quarters than in the first and third quarters of the fiscal year. Any factor that negatively impacts these selling seasons could have an adverse effect on our results of operations for the entire year.”I still think Nordstrom has many advantages compared to its apparel-industry peers, including its not-bloated store fleet, its strong customer service, and its potentially potent idea for small-format local service centers.  But for now, Nordstrom badly needs a win in the second quarter. Strong execution of this deals event will help determine whether it gets one.(1) Loyalty members who are top-tier spenders got access to the sale previously, but Friday is the kickoff for the masses, when any Nordstrom cardholder can start shopping.To contact the author of this story: Sarah Halzack at shalzack@bloomberg.netTo contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.netThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Sarah Halzack is a Bloomberg Opinion columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.

  • How China Can Create Its Own Goldman Sachs
    Bloomberg8 days ago

    How China Can Create Its Own Goldman Sachs

    (Bloomberg Opinion) -- An age-old question has reared its head again: Why can’t China create a globally competitive investment bank in the mold of Goldman Sachs Group Inc. or Morgan Stanley?It’s not like the country hasn’t tried. China International Capital Corp., a venture formed in 1995 with New York-based Morgan Stanley, foundered amid disputes between the local and U.S. partners and slipped behind newer rivals without ever becoming a global heavyweight.(1) Citic Securities Co. made an unsuccessful attempt to buy into Bear Stearns Cos. in 2007 (which was probably a lucky escape). Now add CLSA Ltd. to the list of failures.A common theme running through the exodus of foreign executives from Citic’s CLSA, detailed by Cathy Chan of Bloomberg News this week, and the earlier strains at CICC is the clash of cultures between Wall Street’s freewheeling practices and the more staid, hierarchical approach of Chinese state-controlled financial institutions. U.S. investment banks are highly competitive and individualistic, studded with rainmakers, big-hitting traders and star analysts who may earn vast pay packages and hold power that’s disproportionate to their place in the management structure. It’s a way of working that doesn’t gel easily with China’s top-down state industrial model.When one senior CLSA executive had concerns about the direction of his unit, “colleagues from Citic advised him to steer clear of conversations with the boss that didn’t involve flattery,” Chan wrote. Compare that with this profile of CICC from 2005: “Morgan Stanley's Western bankers were used to disagreeing openly with colleagues. CICC's Chinese employees preferred to resolve differences without confrontation, and in private.” Not much seems to have changed.These tensions took a toll on CLSA, a Hong Kong-based outfit with a reputation for independent-minded research that was acquired in 2013 by Citic Securities. The Chinese brokerage is an arm of Citic Group, a state-owned pioneer of the country’s economic reforms set up under the direction of Deng Xiaoping in the late 1970s. Before the takeover, CLSA was ranked in the top three for Asian research by institutional investors, along with Morgan Stanley and Deutsche Bank AG. By last year, it had dropped out of the top six, according to Greenwich Associates.As a group, Chinese investment banks and securities firms have failed to make much impact on international markets. The combined overseas revenue of the country’s 11 largest brokerages was just $3.5 billion last year, according to Bloomberg Intelligence analyst Sharnie Wong. That’s roughly on a par with the Asian revenue of BNP Paribas SA, which doesn’t rank among the biggest global investment banks. Chinese brokerages are relatively unsophisticated beside their Wall Street rivals, focusing mostly on equities trading – a business that Deutsche Bank AG said this week it’s exiting amid increased automation and low margins. Mainland firms have less of a presence in bond trading and structured products, which remain driven by humans and are the bread and butter of international banks. It could be argued that China doesn’t need a world-class investment bank, given the dominance of local firms in its increasingly important domestic market. The inclusion of the country’s shares in the MSCI Emerging Markets Index and its bonds in the Bloomberg Barclays index has driven billions of dollars of foreign money into Chinese capital markets. Chinese firms have also made headway in IPO underwriting in Hong Kong, dislodging Wall Street rivals in the league tables.Besides, global investment banking revenues have been sliding since the financial crisis, amid low interest rates and the trend toward automated trading. That would be a short-sighted view, though. If China is serious about modernizing its capital markets, it needs the expertise developed by leading international investment banks to provide better fundraising options for its companies. It may be no coincidence that Beijing has finally relented and allowed overseas banks to control their Chinese ventures, among them UBS Group AG, Nomura Holdings Inc., JPMorgan Chase & Co., Morgan Stanley and Credit Suisse Group AG. A slowing economy means efficient allocation of capital has become more more important than ever. Exposing local brokerages to overseas competition may spur them to raise their game.Chinese firms operating in Hong Kong are already moving up the curve in research as they try to make their way in the city’s more robust environment. An example is CGS-CIMB Securities, a venture between China Galaxy Securities Co. and Malaysia’s CIMB Group Holdings Bhd.A world-class investment banking operation needs more than research, though. Much of the competitive advantage for bulge-bracket firms derives from networks of relationships with companies and investors that have been cultivated over decades. Building such capabilities will take time.It’s hard to see this happening until China stops using financial firms as tools of the state. In 2015, the government leaned on brokerages to rescue a crashing stock market. Last month, it asked large securities firms to take over the role of providing financing to small and medium-size enterprises. If China is to produce its own Goldman Sachs, it’s unlikely to come from the sclerotic state economy. Look instead to the wellspring of Chinese innovation: the private sector. For that to happen, though, the state has to get out of the way.Ultimately, the biggest block to Beijing’s ambitions is Beijing itself.  (Updates the eighth paragraph with Chinese firms dislodging rivals in Hong Kong IPO underwriting. An earlier version of this column corrected the spelling of Bear Stearns in the second paragraph.)(1) Morgan Stanley sold its CICC stake in 2010.To contact the author of this story: Nisha Gopalan at ngopalan3@bloomberg.netTo contact the editor responsible for this story: Matthew Brooker at mbrooker1@bloomberg.netThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.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.

  • Bottom 50% of Consumers Are Showing Signs of Weakness, UBS Says
    Bloomberg9 days ago

    Bottom 50% of Consumers Are Showing Signs of Weakness, UBS Says

    (Bloomberg) -- Lower-income U.S. consumers are showing signs of weakness despite the strong market, and if the economy enters a recession, any possible credit crunch could be “material,” according to UBS.Strategists led by Matthew Mish and Eric Wasserstrom wrote in a note Thursday that they’re worried about lower-income consumers who have seen little net worth improvement since the financial crisis. Debt burdens for many of those households have grown as credit card interest rates hit record highs and student loan borrowings surged. UBS expects that the consumer credit cycle can extend but a future downturn could be worse than the one seen in 2001 and 2002 thanks to subprime consumers’ growing debt loads, higher losses and the growth of “fragile” non-bank lenders.“Signs of softness fester in the lower tier,” the strategists wrote. “The Fed’s recent pivot should ease increases in future interest rates, although lagged effects of prior rate hikes will continue to filter into consumer loan rates.”A UBS survey found that households reporting credit problems like loan application rejections matched a survey high of 40%, up 4 percentage points from a year earlier. Consumers’ likelihood of missing a loan payment in the next year increased 1 percentage point to 13%, with most households citing unexpected medical expenses as the primary reason. Many banks are tightening lending standards in response to an uptick on delinquencies on loans like credit cards.Even though the Treasury rally has sent U.S. interest rates sinking, the strategists say many U.S. households are still seeing their interest burdens rise, similar to what occurred in the years before the crisis. The higher rates may come from a shift in what kind of debts consumers have: household debt was a record $13.7 trillion in the first three months of 2019, and most of the post-crisis growth in obligations has come from non-mortgage debts like student loans that carry higher interest rates.While U.S. GDP has grown along with total consumer debt levels, “a growing share of GDP has gone to capital, not labor, and post crisis income gains have been below average for the lower tier consumer,” the strategists wrote.Even though mortgage rates are falling, just 25% of surveyed consumers said they planned to buy a new home, the same percentage as a year earlier. The strategists said the sluggish demand may be explained by moderating wage growth and political and economic uncertainty. Other consumers cited problems getting mortgage credit or concerns about housing affordability. The percentage of households reporting that it was easy to get mortgage credit dropped 5% this year to 77%, and the percentage saying it was easy to find an affordable home declined 6% to 65%.“Given low real wage growth and limited financial asset exposure it is hard for the lower tier to improve savings,” the strategists wrote. “The channel for building wealth is housing investment, but this is increasingly out of reach for many households.”UBS’s consumer credit analysts expect some deterioration in delinquency rates, but say positive wage growth should help most consumers stay current on their obligations. They’re more concerned about long-term trends because consumers’ finances aren’t recovering as well as their credit scores might indicate. They estimate some $2.6 trillion of U.S. household debt is subprime, and any future downturn would likely affect lower-tier U.S. consumers, instead of a more systemic problem like 2008-2009.In parts of corporate credit tied to consumers, UBS is neutral on investment-grade banks after a strong rally so far this year and is reducing its underweight on high-grade auto companies for reasons including stable lending standards and reduced trade risks. In high-yield, the strategists recommend defensive areas like utilities and select health care companies.To contact the reporter on this story: Claire Boston in New York at cboston6@bloomberg.netTo contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net, Allan Lopez, Rizal TupazFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Hedge Fund Up 33% Riding Bond Rally Preps for a 2020 Downturn
    Bloomberg9 days ago

    Hedge Fund Up 33% Riding Bond Rally Preps for a 2020 Downturn

    (Bloomberg) -- A macro hedge-fund manager who netted 33% riding the wild bull market in bonds is tuning out warnings that it’s running out of steam.Said Haidar is bidding up short- to medium-term government bonds in a bet that the Federal Reserve will likely acquiesce to market demands for up to three rate cuts this year. The stimulus may deliver a sugar high to stocks and credit before the risk rally and business cycle falters in 2020, according to the CEO of Haidar Capital Management. That’s why he’s sticking with fixed income.“If the Fed is starting to cut because we’re entering into a material slowdown, that isn’t enough to support the equity market in a big slowdown,” said Haidar who manages $550 million in assets from New York. “Which one do you want to be long: The one that pays you the fixed coupon or the one with the uncertain cash flows that are getting marked lower over time?”The winning formula for the 58-year old has been timing the global monetary pivot. Taking long exposures from the U.S., southern Europe to Australia, Haidar’s Jupiter Fund returned an estimated 33% this year, according to a person familiar with the matter who declined to be identified as the information is private. Haidar declined to comment on fund performance.Hedge funds that bet on macroeconomic shifts around the world are up an average 5.5% in 2019, according to Eurekahedge Pte Ltd, lagging behind the 10.6% gain for equity-long funds, as well as event-driven funds and trend-followers.Fed Chairman Jerome Powell signaled Wednesday that rates are headed lower by at least a quarter-point in July, but stronger-than-expected data on U.S. jobs and inflation have clouded the case for prolonged monetary easing.Everything RallyWall Street has struggled to make peace with the twin rally in bonds and risk assets as global stocks add $10 trillion in value and the U.S. yield curve signals a looming downturn. Credit Suisse Group AG and UBS Asset Management have recently sounded the alarm on the dovish herd in markets, given the margin for disappointment on the U.S. rate path.Many of Haidar’s fast-money peers have been caught off-guard by the extended Treasury rally, with non-commercial traders consistently bearish on the 10-year note, according to Commodity Futures Trading Commission data.By rights, the Fed has little case to ease with America’s unemployment rate near a 50-year low, Haidar says. But the ex-quant at Lehman Brothers expects U.S. policy makers to follow developed peers on a prolonged easing trajectory, spooked by fears of global deflation.“The Fed is terribly afraid of what’s happened already in Japan and Europe,” he said.All told, Haidar expects the Treasury curve to steepen as front-end rates plunge with the two-year yield potentially dropping below 1% from 1.83% currently, he says. In Europe, he’s still bullish on longer-dated securities, and wagering on an ever-flatter curve in the region, Australia and New Zealand.The firm is broadly neutral on equities since the May breakdown in U.S.-China trade talks. Haidar sees the S&P rising to as high as 3,200 by the end of the year, before potentially snapping along with credit in 2020.“All throughout the post-global financial crisis period, we’ve seen that monetary policy has trumped economic data weakness -- but the monetary policy response is getting more and more muted,” he said. “People are still trading like it’s going to be enough to levitate all these asset markets.”To contact the reporter on this story: Justina Lee in London at jlee1489@bloomberg.netTo contact the editors responsible for this story: Blaise Robinson at brobinson58@bloomberg.net, Sid Verma, Cecile GutscherFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Powell Sounds Dovish Enough to Open Door for a Half-Point Cut
    Bloomberg10 days ago

    Powell Sounds Dovish Enough to Open Door for a Half-Point Cut

    (Bloomberg) -- Nothing seems likely to stop Jerome Powell from cutting interest rates later this month. Not the regional Federal Reserve presidents who want to wait, not the strongest labor market in decades, and certainly not the political shadows that hang over such a move.Now traders are asking: If Chairman Powell is so worried about the outlook for economic growth, could he cut rates even more than the quarter-point the market has priced in?“If the economy is really slowing down, and you are hit by shocks that could tip you over,” a quarter-point cut “is not a defensible move,” said Seth Carpenter, chief US economist at UBS Securities Inc in New York. “They are shifting from data dependence to risk management.”Powell said the U.S. economy is facing risks from flagging business sentiment, a global slowdown in manufacturing, and an inflation rate that has remained persistently low. He was speaking in testimony before the House Financial Services Committee on Wednesday.Traders expect a cut of at least a quarter-point at the end of this month, and they dialed up bets on a bigger one after Powell’s comments. The market is now pricing in almost three-quarters of a point of easing by the end of 2019, and short-dated Treasury rates have fallen sharply, taking the two-year yield as low as 1.82%. The dollar also weakened, while U.S. stocks touched record highs.‘Wide Open’“He seemed to encourage investors to expect a rate cut,’’ Roberto Perli, a partner at Cornerstone Macro LLC, said in a note to clients, while leaving the possibility of a half-point cut “wide open.’’The Fed’s biggest policy dove said there’s no need for such an aggressive move.“I would argue for a 25 basis point cut at the next meeting,” St. Louis Fed President James Bullard told reporters later on Wednesday. “I don’t like to prejudge the meeting too much, but if the meeting were today or tomorrow that is what I would be recommending.’’ Bullard dissented in favor of a rate cut last month.The White House is exerting heavy pressure on the Fed to ease policy. President Donald Trump has repeatedly slammed Powell for keeping rates too high, and explored ways to replace him as Fed chair.Powell told Congress he intends to serve a full four-year term, and wouldn’t stand down even if Trump attempts to get rid of him. And he sought to play down the politics surrounding the Fed.Asked if positive or negative comments about the Fed “impeded’’ its ability to implement policy, Powell responded: “We will always focus on doing the job you have assigned us and we will always do it to the best of our ability.’’‘Straight Answer’Some of the most pointed questions on monetary policy came from Rep. Carolyn Maloney, a New York Democrat. Maloney said she didn’t see the case for a half-point cut, and she asked Powell if the June jobs report, which showed employers added 224,000 jobs, had changed his outlook on whether lower rates are needed.“The straight answer to your question is no,’’ Powell said. “The bottom line for me is that the uncertainties around global growth and trade continue to weigh on the outlook,’’ while inflation remains “muted.’’What Bloomberg’s Economists SayWe expect a 25 basis point cut at the July meeting, followed by one more reduction later this year. We expect policy makers to attempt to string market expectations of the second move through to December, depending on the tone of incoming data.\--Carl Riccadonna, Yelena Shulyatyeva and Eliza Winger Click here for the reportRegional Fed presidents in Richmond, Dallas, Philadelphia and Cleveland have all cast doubt on the need to cut interest rates at all.“I prefer to gather more information before considering a change in our monetary policy stance,’’ Cleveland Fed President Loretta Mester said July 2 in London. Mester is not a policy voter this year.A half-point cut could be a risky move. It might suggest to investors that there is some emergency afoot that they don’t yet see. It would also, no matter what Powell says, have political overtones.“I don’t think it is a likelihood,’’ said Julia Coronado, president and founder of Macropolicy Perspectives in New York. She said Powell’s strategy is a “methodical recalibration, rather than an emergency or breaking out the big guns.’’\--With assistance from Emily Barrett.To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.netTo contact the editors responsible for this story: Alister Bull at abull7@bloomberg.net, Ben HollandFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Fed Easing Bets Firm After Jerome Powell Flags Downside Economic Risks
    Bloomberg10 days ago

    Fed Easing Bets Firm After Jerome Powell Flags Downside Economic Risks

    (Bloomberg) -- Traders boosted the amount of easing they expect from the Federal Reserve this month and beyond as Chairman Jerome Powell emphasized persistent risks to the economy.The market firmed in its conviction that a quarter-point cut is coming at the end of this month. Traders also dialed up bets on an even bigger July shift as Powell responded to questions from U.S. lawmakers in Washington, including one directly on the possibility of such a move. The market is now pricing in almost three quarters of a point of easing by the end of 2019 and short-dated Treasury rates have fallen sharply, taking the two-year yield as low as 1.82%. The dollar also weakened, while U.S. stocks are firmer on the day.Powell’s testimony appears to have reassured traders that the rebound in payrolls reported last week won’t deter policy makers from a July move. The Fed chairman himself said Wednesday that the strength of hiring in June had not changed the central bank’s thinking.“Powell fully endorsed the July rate cut and did absolutely nothing to pull the markets back from that expectation,” Peter Boockvar, chief investment officer at Bleakley Financial Group, said in a note.While Powell appears to have removed doubts about whether a rate cut is on the way, market debate over the size of this month’s move is heating up. Columbia Threadneedle senior strategist Ed Al-Hussainy said after Powell’s initial statement that traders might be getting ahead of themselves pricing in more than a quarter-point move this month, as there’s no evidence so far of broad support for more-aggressive action among the members of the Federal Open Market Committee.“The case for a 50 basis points cut in July is very strong, but there isn’t a strong base for it on the FOMC,” he said. “Even on the more dovish side of the spectrum, the voices have been lukewarm.”Morgan Stanley and UBS are among those market watchers still looking for a half-point cut, while Barclays pared its July call back to 25 basis points.Pressed during his Congressional testimony on what would justify a larger move, Powell stuck to general references about a “broad range of data” informing the Fed’s decision, along with the “extent to which trade and global growth are weighing on the outlook,” and the path of inflation.Ben Emons at Medley Global Advisors said Powell’s emphasis on the risks to global growth are a tilt in the direction of more action, and noted the market has raised the odds of a half-point cut.“Powell’s statement reopens the door to the possibility of a 50 basis point cut. The market definitely had that wrong by being too single-data-point minded,” the strategist wrote in a note.The implied rate on fed funds futures for August -- which indicates where the market reckons the central bank’s key rate will be after its July 31 decision -- has fallen to 2.09%. That suggests around 32 basis points of easing from the most recent effective fed funds rate of 2.41%, or more than the usual quarter-point sized move that the central bank tends to make.The implied rate for August had been around 2.16% just before the release of Powell’s remarks. Meanwhile, the yield on the January contract -- an indicator for year-end rates -- slid to 1.70% from 1.80% before the testimony, and the U.S. dollar slipped as much as 0.4% against the yen.Treasury YieldsAs rate cut wagers strengthened, the decline in yields across the Treasuries market also pulled the 10-year benchmark down roughly five basis points from where it was just before Powell’s testimony, to around 2.05%. The sharper drop in two-year rates drove the yield curve steeper to around 22 basis points, reversing its recent flattening trend.The U.S. dollar’s decline, meanwhile, was consistent with Powell’s testimony, according to Bipan Rai, North American head of foreign-exchange strategy at Canadian Imperial Bank of Commerce. But he also said the market’s reluctance to price in a half-point Fed cut for July should keep the currency supported.(Adds comments, updates prices.)\--With assistance from Benjamin Purvis, Alyce Andres and David Wilson.To contact the reporters on this story: Emily Barrett in New York at ebarrett25@bloomberg.net;Liz Capo McCormick in New York at emccormick7@bloomberg.netTo contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net, Mark TannenbaumFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.