|Bid||69.84 x 1400|
|Ask||69.84 x 1200|
|Day's Range||68.96 - 70.11|
|52 Week Range||48.42 - 75.24|
|Beta (3Y Monthly)||1.88|
|PE Ratio (TTM)||9.71|
|Earnings Date||Oct 15, 2019|
|Forward Dividend & Yield||2.04 (2.90%)|
|1y Target Est||81.70|
(Bloomberg) -- Oil posted its biggest ever intraday jump, briefly surging above $71 a barrel after a strike on a Saudi Arabian oil facility removed about 5% of global supplies and raised the specter of more destabilization in the region.In an extraordinary start to trading on Monday, London’s Brent futures leaped almost $12 in the seconds after the open, the most in dollar terms since their launch in 1988. Prices have since pulled back about half of that initial gain of almost 20%, but with Saudi Aramco officials saying they’re less hopeful of a rapid output recovery, crude is still heading for the biggest advance in almost three years.For oil markets, it’s the single worst sudden disruption ever, and while Saudi Arabia may be able to return some supply within days, the attacks highlight the vulnerability of the world’s most important exporter. They also revive political risk in prices, with the heightened danger of conflict in a region that holds almost half of global crude reserves.“We have never seen a supply disruption and price response like this in the oil market,” said Saul Kavonic, an energy analyst at Credit Suisse Group AG. “Political-risk premiums are now back on the oil-market agenda.”The dramatic move in oil reverberated around financial markets. Haven assets including gold and Treasury futures surged on concern over the geopolitical fallout from the attacks. Currencies of commodity-linked nations including the Norwegian krone and the Canadian dollar also advanced. U.S. gasoline futures jumped almost 13% before paring their increase to around 8%.State energy producer Saudi Aramco lost about 5.7 million barrels a day of output on Saturday after 10 unmanned aerial vehicles struck the world’s biggest crude-processing facility in Abqaiq and the kingdom’s second-largest oil field in Khurais.The disruption surpasses the loss of Kuwaiti and Iraqi petroleum output in August 1990, when Saddam Hussein invaded his neighbor. It also exceeds the loss of Iranian oil production in 1979 during the Islamic Revolution, according to the International Energy Agency.“The vulnerability of Saudi infrastructure to attacks, historically seen as a stable source of crude to the market, is a new paradigm the market will need to deal with,” said Virendra Chauhan, a Singapore-based analyst at industry consultant Energy Aspects Ltd. “At present, it is not known how long crude will be offline for.Saudi Aramco officials are growing less optimistic that there will be a rapid recovery in oil production after the attack on the giant Abqaiq processing plant, a person with knowledge of the matter said. The kingdom -- or its customers -- may use stockpiles to keep supplies flowing in the short term. Aramco could consider declaring itself unable to fulfill contracts on some international shipments -- known as force majeure -- if the resumption of full capacity at Abqaiq takes weeks.That would rattle oil markets further and cast a shadow on Aramco’s preparations for what could be the world’s biggest initial public offering. It’s also set to escalate a showdown pitting Saudi Arabia and the U.S. against Iran, which backs proxy groups in Yemen, Syria and Lebanon. Iran-backed Houthi rebels in Yemen claimed credit for the attack, but U.S. President Donald Trump and Secretary of State Mike Pompeo have already pointed the finger directly at Iran.Trump Vows U.S. ‘Locked and Loaded’ If Iran Was Behind AttacksTrump, who said the U.S. is “locked and loaded depending on verification” that Iran staged the attack, earlier authorized the release of oil from the nation’s emergency reserves. The IEA, which helps coordinate industrialized countries’ emergency fuel stockpiles, said it was monitoring the situation.“No matter whether it takes Saudi Arabia five days or a lot longer to get oil back into production, there is but one rational takeaway from this weekend’s drone attacks on the kingdom’s infrastructure -- that infrastructure is highly vulnerable to attack, and the market has been persistently mispricing oil,” Ed Morse, Citigroup Inc.’s global head of commodities research, wrote in a note.Brent jumped more than 19% to $71.95 a barrel on ICE Futures Europe, its biggest gain in percentage terms since 1991. In the ensuing hours, it pared that advance to trade up 10.7% at $66.68 a barrel as of 1:13 p.m. in London. The global benchmark crude could rise above $75 a barrel if the outage at Abqaiq lasts more than six weeks, Goldman Sachs Group Inc. said.On the New York Mercantile Exchange, West Texas Intermediate futures were frozen for about two minutes after the scale of the move delayed the market open. When it finally started trading, WTI jumped more than 15% to $63.34 a barrel, the most since 2008. It was at $60.29 as of 8:14 a.m. local time.The attacks “set the stage for a Monday-morning mini-massacre of any market participants holding short positions or bearish expectations,” said John Driscoll, chief strategist at JTD Energy Services Ltd. in Singapore. The “price move was exacerbated by the unprecedented magnitude of the outage on the world’s key supplier and the potential for escalation of geopolitical skirmishes involving the U.S., Saudi and Iran.”The drama wasn’t limited to flat prices. The spread between Brent and WTI widened as much as 37%, showing that the oil spike will affect global prices more than those in the U.S., where shale output and ample supplies provide more of a buffer.Brent’s six-month backwardation jumped to the highest level since September 2013 as the outage raised concerns about obtaining near-term supplies. And the call-put skew flipped into positive territory for the first time since 2018, indicating that options traders are willing to pay more to place a bet on prices rising rather than falling.\--With assistance from Nayla Razzouk, Javier Blas, Anthony DiPaola, David Marino, James Thornhill, Michael Roschnotti, Tina Davis, Stephen Stapczynski, Sharon Cho, Ann Koh, Heesu Lee, Sarah Chen, Ramsey Al-Rikabi and Grant Smith.To contact the reporters on this story: Serene Cheong in Singapore at email@example.com;Dan Murtaugh in Singapore at firstname.lastname@example.orgTo contact the editors responsible for this story: James Herron at email@example.com, Helen Robertson, Christopher SellFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Saudi Aramco officials are growing less optimistic that there will be a rapid recovery in oil production after the attack on the giant Abqaiq processing plant, a person with knowledge of the matter said.All eyes are on how fast the kingdom can recover from the weekend’s devastating strike, which knocked out roughly 5% of global supply and triggered a record surge in oil prices. Initially, it was said that significant volumes of crude could begin to flow again within days, but it may now take longer than previously thought to resume operations at the plant, the person said, asking not be named before an official announcement. The company is scheduled to provide an update later today.The loss of Abqaiq, which handles 5.7 million barrels of oil a day, or about half of Saudi production, is the single worst sudden disruption to the oil market. Saudi Aramco is firing up idle offshore oil fields -- part of their cushion of spare capacity -- to replace some of the lost production, the person said. Aramco customers are being supplied using stockpiles, though some buyers are being asked to accept different grades of crude oil.In an extraordinary start to trading on Monday, London’s Brent futures leaped almost $12 in the seconds after the open, the most in dollar terms since their launch in 1988. Prices have since pulled back about half of that initial gain of almost 20%, trading at $66.66 a barrel as of 12:48 p.m. in London, but are still heading for the biggest advance in more than three years.In addition to the immediate loss of supply, the attack raised the specter of U.S. retaliation against Iran, which it blamed for the strike. While Iran-backed Houthi rebels in Yemen claimed responsibility for the strike, which they said was carried out by a swarm of 10 drones, several administration officials Sunday said they had substantial evidence Iran was directly responsible. President Donald Trump tweeted the U.S. is “locked and loaded depending on verification” that Iran was the real source.To see the photos that show how the attack crippled Saudi Arabia’ output, click here.Responsible for almost a 10th of global crude output, Saudi Arabia has been under siege this year -- targeted by air, sea and land -- as tensions with Iran flare. The Houthi rebels said on Monday that oil installations in the kingdom will remain among their targets. The Iranian-backed rebel group, cited by the Houthi’s television station, said its weapons can reach anywhere in the country.“No matter whether it takes Saudi Arabia five days or a lot longer to get oil back into production, there is but one rational takeaway from this weekend’s drone attacks on the Kingdom’s infrastructure -- that infrastructure is highly vulnerable to attack, and the market has been persistently mispricing oil,” Citigroup Inc.’s Ed Morse wrote in a research note.Trump authorized the release of oil from the U.S. Strategic Petroleum Reserve, while the International Energy Agency, which helps coordinate industrialized countries’ emergency fuel stockpiles, said it was monitoring the situation.The Organization of Petroleum Exporting Countries is in regular contact with the Saudi authorities, who have risen to the challenge by keeping oil flowing, the group’s Secretary-General Mohammad Barkindo said in a Bloomberg TV interview. It’s premature to talk about reversing the oil-production cuts implemented by OPEC and its allies, he said.Even if OPEC+ did decide to roll back their cuts, they would only be able to add about 900,000 barrels a day to the market, just a fraction of the Saudi losses, according to Bloomberg calculations based on IEA data.(Updates with oil price in fourth paragraph.)To contact the reporters on this story: Will Kennedy in London at firstname.lastname@example.org;Javier Blas in London at email@example.comTo contact the editor responsible for this story: Will Kennedy at firstname.lastname@example.orgFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here. China’s slowdown is deepening just as risks for the global economy mount, piling pressure on the authorities to do more to support growth.Industrial output rose 4.4% from a year earlier in August, the lowest for a single month since 2002, while retail sales came in below expectations. Fixed-asset investment slowed to 5.5% in the first eight months, with the private sector lagging state investment for the 6th month.The data add support to the argument that policy makers’ efforts to brake the slowing economy aren’t sufficient as the nation grapples with structural downward pressure at home, the risk of yet-higher tariffs on exports to the U.S. and now surging oil prices. Nomura International Ltd. said this all raises the likelihood that the People’s Bank of China will cut its medium-term lending rate on Tuesday.“In terms of policy room, we still think there’s quite a lot for both the Ministry of Finance and the PBOC, but now it’s a matter of whether they want to use it,” Helen Qiao, chief Greater China economist at Bank of America Merrill Lynch said on Bloomberg television. “What I worry about is that policy makers are hesitating at the moment because of the potential implications on the long term impact, so they’re really fallen behind the curve.”The Shanghai Composite swung between gains and losses before closing slightly lower. Futures contracts on China’s 10-year government bond regained losses after the data release to close at 0.07% higher on Monday.The slowdown in output was almost across the board, with food processing and general equipment manufacturing unchanged from last year. Car output rose after declining for four months. Growth in sales of consumer goods slowed to 7.2%, the lowest since April this year, but there was an increase in food sales. The unemployment rate fell to 5.2% from 5.3% in July, within the narrow band it has occupied all year even amid the slowdown.The record oil price surge after a strike on a Saudi Arabian oil facility couldn’t have come at a worse time for China and a world economy already in the grip of a deepening downturn. While the severity of the impact will depend on how long the oil price spike endures, it risks further eroding fragile business and consumer confidence amid the ongoing U.S.-China dispute and already slowing global demand.Saudi Arabia is the largest single source of China’s crude oil imports, which in turn supply about 70% of total demand.After China’s data release on Monday by the National Bureau of Statistics, Citigroup Inc. lowered its growth forecast for the world’s second-biggest economy to 6.2% for this year from 6.3% previously, and to 5.8% from 6% for 2020.“We don’t expect a growth rebound in the fourth quarter anymore, with the new forecast flat at 6.1% year on year,” wrote Yu Xiangrong, a Hong Kong-based economist with Citigroup, referring to the quarterly outlook. “In particular, we now hold a more cautious view on the recovery of infrastructure investment and retail sales.”The People’s Bank of China cut the amount of cash banks must hold as reserves this month to the lowest level since 2007, though it’s still holding off on cutting borrowing costs more broadly.Some 265 billion yuan ($37.5 billion) of 1-year loans from the PBOC to banks will mature on Tuesday. The central bank will likely roll-over at least some of these, giving it an opportunity to cut the rate it charges.Analysts are divided on whether the PBOC would actually take the chance to cut. Some see the need for more significant easing while the other argue the authorities would like to avoid announcing multiple stimulus at once, and they’ll watch the U.S. Federal Reserve before taking any actions themselves. The Fed is expected to cut rates this week.Morgan Stanley expects borrowing costs to be cut by 10-15 basis points as early as this week, likely in the form of an medium-term lending rate cut.What Bloomberg’s Economists Say..“We expect policy support to continue at a measured pace as Chinese authorities strive to put a floor under the slowing economy. Yet, officials are bracing for a long war, and are careful not to deplete their policy ammunition.”-- Chang Shu and David Qu, Bloomberg EconomicsFor the full note click hereIt’s getting more difficult to “safeguard 6%” expansion in the third quarter and growth will likely slow further from the pace in the second quarter, China International Capital Corp. economists led by Eva Yi wrote in a note. Not only is it necessary, but there is room to step up the intensity of counter-cyclical adjustment in a timely manner to make sure economic growth won’t slip below the targeted growth range of 6-6.5%, Yi said.There are likely to be more easing measures including cuts to banks’ reserve ratios and the PBOC’s mid-term lending rate, although that cut probably wouldn’t happen this week, said Peiqian Liu, China economist at Natwest Markets Plc in Singapore. The pace of economic slowdown is faster than expected and the impact of the trade war on Chinese manufacturers has been relatively big, she said.Goodwill TalksNegotiators from China and the U.S. plan to have two rounds of face-to-face negotiations in coming weeks. Both sides have taken steps to show goodwill, and U.S. officials are considering an interim deal to delay tariffs with China, people familiar with the matter told Bloomberg.However, even if those talks do go well and get the negotiations back on track, it may not be enough.“Even a reprieve on the trade front, with U.S. and Chinese negotiators back at the table, will not in itself cure China’s growth malaise,” said Frederic Neumann, co-head of Asian economics research at HSBC Holdings Plc in Hong Kong. “There is a growing risk that keeping the reins too tight may push growth much lower.”(Updates with Morgan Stanley comments and markets reaction.)\--With assistance from Amanda Wang, Tian Chen, Yinan Zhao, Enda Curran, Dan Murtaugh and Claire Che.To contact Bloomberg News staff for this story: Miao Han in Beijing at email@example.com;Tomoko Sato in Tokyo at firstname.lastname@example.org;Kevin Hamlin in Beijing at email@example.comTo contact the editors responsible for this story: Jeffrey Black at firstname.lastname@example.org, James MaygerFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg Opinion) -- Heading into September, the $16 trillion U.S. Treasury market was signaling dark days ahead for America’s economy.On Aug. 28, 30-year yields dropped to an all-time low of 1.9%, a shocking figure that indicated no fear of inflation or sustained growth. By Sept. 3, bond traders were betting the Federal Reserve would slash its benchmark lending rate to below 1% before the November 2020 presidential election, from an effective rate of 2.13% now. Many measures of the U.S. yield curve remained inverted. Recession signals flashed just about anywhere investors looked.Now, just days before the Fed’s next interest-rate decision, the outlook is remarkably brighter. Last week, the core consumer price index data showed a 2.4% increase in August relative to a year earlier, the strongest pickup in inflation since 2008. Retail sales also beat expectations. Before that, average hourly earnings and the ISM non-manufacturing gauge topped estimates, helping to push Citigroup Inc.’s U.S. economic surprise index close to a 2019 high.Much like the economists caught unawares, bond traders were also shocked, to say the least. By Friday, two-year yields had climbed 37 basis points from their lows earlier this month, while yields on 10- and 30-year bonds rose by almost 50 basis points, including a sharp double-digit increase on Friday. The only two comparable moves in the past several years occurred during the so-called Taper Tantrum in 2013 and after the presidential election in November 2016.Effectively, traders’ thinking comes down to this: Fed Chair Jerome Powell said nothing in his speech before the central bank’s blackout period to dissuade them from pricing in an interest-rate reduction this Wednesday. But, what then? The logical place to turn, it would seem, is the central bank’s economic projections, and in particular its “dot plot,” which aggregates officials’ expectations for the future path of interest rates. It’s due for an update this week for the first time since the June meeting. At that time, the median dot called for zero cuts to the fed funds rate in 2019, and only one reduction in 2020. Obviously, things changed in a way policy makers didn’t see coming.And therein lies the problem with relying on the dot plot. The Fed, for better or worse, is flying as blind as any time in the past few years, due in no small part to the unpredictability of President Donald Trump’s continuing trade war with China. Powell diplomatically acknowledged as much during his Sept. 6 remarks: “Sometimes it’s easy to get unanimity on things when the path is clear,” he said. “Other times it’s murky out there and there’s a range of views. This is one of those times.”Of course, that won’t stop Wall Street from predicting what those views will look like come Wednesday at 2 p.m. New York time. Strategists at Bank of America Corp. see the median for 2019 dropping to 1.625%, effectively indicating central bankers will cut rates once more either in October or December; after that, they expect the Fed to signal no changes throughout 2020, with gradual increases to resume again in 2021 and 2022. TD Securities strategists also expect the Fed to signal another cut before year-end. John Herrmann at MUFG Securities Americas says he counts at least five of the 17 dot-plot participants who would dissent over another reduction in rates after September’s. Add a few more to the mix after strong readings on inflation and retail sales, and maybe the Fed will signal a pause for the rest of the year.Rather than take a stab at what the dot plot will look like, Jon Hill at BMO Capital Markets focused instead on the question of whether the dots should simply be ignored:“In the best of times, it would correspond to the FOMC's path-dependent baseline scenario, assuming their baseline economic forecasts play out. This was arguably the case for much of 2017 and 2018 and corresponded to a regular and predictable quarter-point hiking cadence.Alternatively, in moments like this — when uncertainty is elevated and even the axiom that 'cutting rates will help spur growth' is up for debate — it's hard to interpret the dot plot as more than a general inclination and bias regarding the outlook. This has enormous value in providing insight into the Fed's reaction function to macroeconomic developments. Given the number of moving pieces, Powell wants to maintain flexibility both with regards to the current stance but also forward guidance.”This advice – to not read too much into the precise levels of the dots – is probably bond traders’ best bet. Powell has made it abundantly clear that he and his colleagues are focused on doing what’s necessary to sustain the expansion. That means if economic data persistently weaken, they will ease policy. And if Trump ratchets up the trade-war rhetoric, as he did less than 24 hours after the Fed’s last meeting, they will also probably ease policy. It also has to be said that the Fed has shown time and again to take its cues from the bond market. Traders had priced in a quarter-point rate cut on July 31 way back in early June, and Powell opted not to push back even though he probably could have. If policy makers think the economy is strong, but market prices suggest the opposite, investors have history on their side to anticipate the central bank will ultimately capitulate.It’s hard to say whether that trend ought to be comforting or frightening for bond traders, given the swift correction in Treasuries this month. Because if the Fed is flying blind, then so, too, are economists and investors, to some extent. A Bloomberg survey of 57 analysts, released on Sept. 13, showed a median estimate of 1.7% for the 10-year U.S. yield at year-end. The highest forecast was for 2.58%, and the lowest was 1%. The difference of opinion only widens in 2020.Obviously, whether Treasuries soar to new records or keep unwinding their recent gains will have enormous implications for profits and losses among bond investors. Unfortunately for those looking for some direction, the Fed’s dot plot won’t be the guiding light to put them on the right side of the trade.To contact the author of this story: Brian Chappatta 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.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.
Buckingham analyst James Mitchell says the banking giant has produced excellent returns but is now expensive relative to peers.
(Bloomberg) -- All eyes are on how fast Saudi Arabia can restore production after this weekend’s devastating strike on key facilities, which knocked out roughly 5% of global supply and triggered a record surge in oil prices.Significant volumes could come back within days, people familiar with the matter said over the weekend, adding that it could still take weeks to restore full capacity. Industry consultant Energy Aspects estimated that the country will be able to restore almost half the lost production as early as Monday. Saudi Aramco said Saturday that it would provide an update in about 48 hours. It didn’t immediately respond to requests for comment Monday.“We need to know if it’s a 48-hour outage or if it’s a four-week outage,” Ashley Peterson, a senior oil market analyst at Stratas Advisors, said on Bloomberg TV. “That’s really what’s going to drive prices.”The estimated 5.7 million barrels a day of lost Saudi oil is the single biggest sudden disruption ever, surpassing the loss of Kuwaiti and Iraqi supply in August 1990 and Iranian output in 1979 during the Islamic Revolution, according to data from the International Energy Agency.Here’s How Asian Governments Are Reacting to the Aramco AttackIn addition to the immediate loss of supply, the attack raised the specter of U.S. retaliation against Iran, which it blamed for the strike. While Iran-backed Houthi rebels in Yemen claimed responsibility for the strike, which they said was carried out by a swarm of 10 drones, several administration officials Sunday said they had substantial evidence Iran was directly responsible. President Donald Trump tweeted the U.S. is “locked and loaded depending on verification” that Iran was the real source.Brent oil, the global benchmark, jumped more than 19% when markets opened Monday. In dollar terms, the nearly $12 a barrel surge was the biggest intraday rise since trading began in 1988. Futures paired those gains to trade up $6.47, or 11%, at $66.69 a barrel as of 6:48 a.m. in London.“We expect oil to rise by more than 5% in the short term or more than 20% if impact is protracted,” analysts at Sanford C. Bernstein & Co. wrote in a note. “But much depends on what Aramco says around how quickly production can be restored.”The attack Saturday struck the world’s biggest crude-processing facility in Abqaiq and the kingdom’s second-biggest oil field in Khurais, exposing a vulnerability at the heart of the global oil market.“No matter whether it takes Saudi Arabia five days or a lot longer to get oil back into production, there is but one rational takeaway from this weekend’s drone attacks on the Kingdom’s infrastructure -- that infrastructure is highly vulnerable to attack, and the market has been persistently mispricing oil,” Citigroup Inc.’s Ed Morse wrote in a research note.Trump authorized the release of oil from the U.S. Strategic Petroleum Reserve, while the International Energy Agency, which helps coordinate industrialized countries’ emergency fuel stockpiles, said it was monitoring the situation.The attack is the most serious on Saudi Arabia’s oil infrastructure since Iraq’s Saddam Hussein fired Scud missiles into the kingdom during the first Gulf War.Saudi oil facilities as well as foreign tankers in and around the Persian Gulf have been the target of several attacks over the past year. The escalation coincided with the President Trump’s decision to pull the U.S. out of the 2015 nuclear agreement with Iran and re-imposed crippling economic sanctions against the Islamic Republic. The Houthis, who are fighting Saudi-backed forces in Yemen, have claimed responsibility for most of the strikes against Aramco installations.Aramco will be able to keep customers supplied for several weeks by drawing on a global storage network. The Saudis hold millions of barrels in tanks in the kingdom itself, plus three strategic locations around the world: Rotterdam in the Netherlands, Okinawa in Japan, and Sidi Kerir on the Mediterranean coast of Egypt.Before the attack, Saudi Arabia was pumping about 9.8 million barrels a day, almost 10% of global production. Aramco could consider declaring itself unable to fulfill contracts on some international shipments -- know as force majeure -- if the resumption of full capacity at Abqaiq takes weeks, people familiar with the matter said, asking not be identified before a public statement.Instead of supplying some customers with the usual crude oil grades of Arab Light or Arab Extra Light, the company may offer them Arab Heavy and Arab Medium as a replacement, according to a person familiar with the matter.A satellite picture from a NASA near real-time imaging system published early on Sunday, more than 24 hours after the attack, showed the huge smoke plume over Abqaiq had dissipated completely. But four additional plumes to the south-west, over the Ghawar oilfield, the world’s largest, were still clearly visible.While that field wasn’t attacked, its crude and gas is sent to Abqaiq for processing. The smoke most likely indicated flaring, the industry term for what happens when a facility stops suddenly and excess oil and natural gas is safely burned off.\--With assistance from Mahmoud Habboush, Verity Ratcliffe, Manus Cranny, Giovanni Prati and Anthony DiPaola.To contact the reporters on this story: Nayla Razzouk in Dubai at email@example.com;Javier Blas in London at firstname.lastname@example.org;James Thornhill in Sydney at email@example.comTo contact the editors responsible for this story: Nayla Razzouk at firstname.lastname@example.org, Ramsey Al-Rikabi, Ben SharplesFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- As bankers discussed Saudi Aramco’s initial public offering at the Ritz Carlton hotel in Dubai last week, a drone attack was being planned to hit the heart of its operations over the weekend. It caused Saudi Arabia to halve its oil output and may cut the valuation of Aramco’s milestone deal.The giant oil producer has accelerated preparations for a share sale that could happen as soon as November in Riyadh. Dozens of bankers from Citigroup Inc. to JPMorgan Chase & Co. met last week to work on the deal, with analyst presentations scheduled for Sept. 22, people familiar with the matter have said.“Crown Prince Mohammed bin Salman will push the company to demonstrate that it can effectively tackle terrorism or war challenges,” analysts led by Ayham Kamel, head of Middle East and North Africa research at the Eurasia Group, said in a report. “The attacks could complicate Aramco’s IPO plans.”In an attack blamed by the U.S. on Iran, a swarm of drones laden with explosives set the world’s biggest crude-processing plant ablaze. Floating a minority stake of the oil giant, officially known as Saudi Arabian Oil Co., is part of Prince Mohammed’s efforts to modernize and diversify the economy.The attacks underscored geopolitical tensions in the region. Iran denied responsibility, which was instead claimed by Iranian-backed Houthi rebels in Yemen.Oil prices surged by the most on record to more than $71 a barrel after the strike removed about 5% of global supplies. The main Saudi stock index Sunday fell as much as 3.1%, leading losses in the Gulf. Back in 2017, investors suspected that Saudi government-related funds swooped in to support the market after the imprisonment of local billionaires at the Ritz-Carlton in Riyadh. That also happened amid the international crisis following columnist Jamal Khashoggi’s murder at the Saudi consulate in Istanbul.Here’s more from analysts and investors:Eurasia“The latest attack on Aramco facilities will have only a limited impact on interest in Aramco shares as the first stage of the IPO will be local. The international component of the sale would be more sensitive to geopolitical risks”Current valuation estimates for Aramco and its assets might not fully account for geopolitical risksNOTE: Prince Mohammed, the architect of the IPO, has said he expects Aramco to be valued at over $2 trillion, but analysts see $1.5 trillion as more realisticAl Dhabi Capital, Mohammed Ali Yasin“I think this attack may delay the IPO even on the local exchange, and could affect the valuation negatively, as the investors have seen a live demonstration of the risk levels of the future revenues and business of the company. That was very low prior to this weekend attack”“Aramco has one main source of revenue, oil. That is its strength, but now it is becoming its biggest weakness if it gets disrupted”United Securities, Joice MathewThis “will force investors to go back to the drawing board and re-evaluate their risk models on Aramco”“Even though this is a rare event, which could be potentially categorized as 4 or 6 sigma levels, the geopolitical risk premium on Aramco’s valuation model would show a sharp increase”“As far as the pricing is concerned, my view is that there may not be much of an impact if the government is contemplating a 1% listing on the Tadawul. I think the government has the power and ability to influence the decisions of anchor investors there”Tellimer, Hasnain Malik“Ultimately the security risk is not so acute that it outweighs oil price, oil output and free float drivers of the valuation”This attack “also provides an opportunity for Aramco to demonstrate the redundancy and resilience of its supply chain by minimizing disruption to customers and thereby helping to mitigate the valuation impact of this risk”Qamar Energy, Robin Mills“It will be all but impossible to proceed with the IPO if there are ongoing attacks”“Valuing Aramco like Shell or ExxonMobil gets us to about $1.2-1.4 trillion. But that would drop significantly if we apply company-specific risk factors”Al Ramz Capital, Marwan Shurrab"The attacks could impact foreign sentiment for the IPO, but I don’t see a substantial hit to the valuation at this stage""Geopolitical risk has always been an important factor for valuations across the Middle East region. Aramco will have to demonstrate its financial resilience toward such incidences to gain investors confidence”\--With assistance from Mahmoud Habboush.To contact the reporters on this story: Shaji Mathew in Dubai at email@example.com;Filipe Pacheco in Dubai at firstname.lastname@example.org;Sarah Algethami in Riyadh at email@example.comTo contact the editors responsible for this story: Shaji Mathew at firstname.lastname@example.org, Paul Wallace, Claudia MaedlerFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Rising long-term treasury yields are likely to support banks' financials to some extent. But lower interest rates and other concerns are expected to be headwinds.
(Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here. China said it is encouraging companies to buy U.S. farm products including soybeans and pork, and will exclude those commodities from additional tariffs, in the latest move to ease tensions before the two sides resume trade talks.The Commerce Ministry’s announcement on Friday follows a move earlier this week to exempt a range of American goods from 25% extra tariffs put in place last year, as the government seeks to lessen the impact from the trade war. China didn’t specify the amount of purchases of pork and soybeans, which are key exports from agricultural states important for President Donald Trump’s 2020 reelection bid.Equity markets have rebounded in recent days as both Trump and Chinese leader Xi Jinping sought to lower tensions that are clouding the outlook for the world’s biggest economies. Adding to the pressure on Beijing, China is facing pork shortages that are pushing up prices during a holiday period, prompting officials to ration sales in some areas. Still, major differences on the substantive issues that sparked the trade war remain.“It is hoped the U.S. side can keep goodwill reciprocity with China through practical actions,” Global Times editor-in-chief Hu Xijin said in a tweet shortly before the move was announced.Trump administration officials have discussed offering a limited trade agreement to China that would delay and even roll back some U.S. tariffs for the first time in exchange for Chinese commitments on intellectual property and agricultural purchases. Working-level teams from both countries are set to meet next week.“The ice is thawing,” said Chua Hak Bin, an economist at Maybank Kim Eng Research Pte. in Singapore. “China’s reciprocity to Trump’s goodwill gesture will set the stage for more cooperative trade talks.”Soybean futures were little changed in Chicago after the Xinhua announcement. Prices had jumped 3.3% on Thursday and hog futures rose the most allowed by the exchange amid optimism that China will boost imports of American farm products. The U.S. government also cut its outlook for soybean stockpiles more than expected in a monthly crop report.The Shanghai Composite Index increased for a second consecutive week, and the S&P 500 Index was on course for its third straight week of advances.The Chinese government is growing increasingly concerned about soaring prices and its potentially to mar celebrations for the 70th anniversary of the People’s Republic of China’s founding on Oct. 1. China is hoping to import 2 million tons for the year, some of which would be added to state reserves, according to people with knowledge of the plans.China bought about a million tons of pork so far this year, of which about 87,771 tons were from the U.S., according to Chinese customs data. Even if purchases tripled, imports would only make up about 6.6% of domestic supply, Citigroup Inc. said in a report on Sept. 12. The world’s biggest consumer of pork accounted for about half of global demand last year, while it produced about 54 million tons, Citigroup said.More imports are only going to go part of the way to addressing shortages. The country is likely to see a 10 million ton pork deficit this year, more than the roughly 8 million tons in annual global trade, according to Vice Premier Hu Chunhua. That means the country will need to fill the gap by itself, he said.China’s Fight Against Pork Prices Could Include U.S. Imports China had halted U.S. farm-product imports in August after trade-deal negotiations deteriorated. Before that, Beijing had given the go-ahead for five companies to buy up to 3 million tons of U.S. soybeans free of retaliatory import tariffs, people familiar with the situation had said.The goods exempted from additional tariffs this week by China included pharmaceuticals, lubricant oil, alfalfa, fish meal and pesticides. The exemptions are effective from Sept. 17 to Sept. 16, 2020, and will cover 16 categories of products worth about $1.65 billion, according to Bloomberg calculations based on China’s 2018 trade data. Further rounds of Chinese exemptions will be announced in due course, the ministry said.Wednesday’s exemptions apply to the round of tariffs Beijing imposed on U.S. goods starting last July in retaliation for higher U.S. levies. China began accepting applications for tariff exemptions in May, but it is the first time they have stated which products will be excluded. The U.S. Trade Representative’s Office has announced six rounds of exclusions for the punitive tariffs on $34 billion in Chinese goods since December.“We can all see there is a likelihood of a mini-deal given China’s pork problems and to a lesser degree the 2020 election issue,” said Michael Every, head of Asia financial markets research at Rabobank in Hong Kong. “Does this mean we get a ‘real deal’? Let’s just say that this is still highly unlikely.”\--With assistance from Karen Leigh, Anna Kitanaka, Enda Curran, Kevin Hamlin, Miao Han and Megan Durisin.To contact Bloomberg News staff for this story: Crystal Chui in Zurich at email@example.com;Lucille Liu in Beijing at firstname.lastname@example.orgTo contact the editors responsible for this story: Jeffrey Black at email@example.com, ;Brendan Scott at firstname.lastname@example.org, Brendan MurrayFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here. China wants to boost purchases of pork from overseas, including the U.S. and European Union, as the government grows increasingly concerned about soaring prices, according to people with knowledge of the plans.The need for more pork coincides with a potential move by Beijing to ease trade tensions with Washington by resuming imports of U.S. farm goods ahead of talks in coming weeks. Some of the pork would be added to state reserves, according to the people, who asked not to be identified because they’re not authorized to speak publicly. There’s no official target, though total imports of 2 million tons for the year would be considered ideal, one of them said.Beijing has become increasingly vocal about the need to boost the country’s pork supplies as herds are decimated by African swine fever. Leaders are fretting over how record prices of the staple food will impact economic stability and potentially mar celebrations for the 70th anniversary of the People’s Republic of China’s founding on Oct. 1. No fewer than six ministries, including the top state planning agency, announced measures on Wednesday to mitigate the impact on pork prices, which surged 47% last month.China bought about a million tons of pork so far this year, of which about 87,771 tons were from the U.S., according to Chinese customs data. Even if purchases tripled, imports would only make up about 6.6% of domestic supply, Citigroup Inc. said in a report on Sept. 12. The world’s biggest consumer of pork accounted for about half of global demand last year, while it produced about 54 million tons, Citigroup said.“When U.S.-China trade talks warm up, China should be ready to buy significantly more from the U.S.” Citigroup economists including Xiangrong Yu wrote. “However, an increase in Chinese demand may move up global pork prices given its scale.”More imports are only going to go part of the way to addressing shortages. The country is likely to see a 10 million ton pork deficit this year, more than the roughly 8 million tons in annual global trade, according to Vice Premier Hu Chunhua. That means the country will need to fill the gap by itself, he said.Just over a year has passed since the world’s biggest hog producer first reported an outbreak of African swine fever. The highly contagious disease quickly spread throughout the country despite efforts to control it. China, which had more than 400 million pigs before the outbreak, has seen herds tumble by about a third with farmers afraid to restock for fear of a second contagion.While the disease is now endemic in some parts of China and has spread to neighboring countries including Laos, Vietnam, Philippines and Mongolia, Chinese authorities have been calling on the nation’s farms to rebuild their herds with offers of subsidies.Vice Premier Hu recently called the situation “much grimmer than we have been informed,” and told officials to take immediate steps to increase supplies.After data on Tuesday showed a 20 percentage point gain in pork prices from the previous month, the government has been increasingly public about the need to address prices. The National Development & Reform Commission on Wednesday said efforts to ensure supplies and stabilize prices will include releasing frozen pork from reserves to cover upcoming holidays, including next month’s anniversary celebrations.Pork production in the European Union and Brazil, meanwhile, is expected to rise to record levels, with exports climbing to help fill the supply gap emanating from China, according to the U.S. Department of Agriculture.But one Chinese government researcher says the shortfall is too vast to be made up by imports and prices simply have to rise to cap demand.(Updates with Citi comment in fourth, fifth paragraphs.)To contact Bloomberg News staff for this story: Niu Shuping in Beijing at email@example.com;Steven Yang in Beijing at firstname.lastname@example.orgTo contact the editors responsible for this story: Anna Kitanaka at email@example.com, Alexander Kwiatkowski, Jason RogersFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Shares of SmileDirectClub, Inc. Fell 28% on Their First Day of Trade By John Jannarone This is one record that’s nothing to smile about. Shares of SmileDirectClub, Inc., the much-hyped orthodontics disruptor, fell 28% Thursday after pricing at $23 each, above the indicative range of $19 and $22 per share. That is by far the […]
The S&P 500 is flirting with new all-time highs. The recent rally has been fast, and some names have done better than others. Today's top stock trades center around the banks. Top Stock Trades for Tomorrow 1: iShares TLT Bond ETFNo one seems to care about the buybacks, dividends and low valuations from the banks. But one big driver has been rates, and thus, bonds. So let's look at the iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) first.InvestorPlace - Stock Market News, Stock Advice & Trading TipsThe TLT has demanded plenty of traders' attention since the beginning of August. That's when bonds began to explode higher to the upside, rallying from $132 to $148 in just a few weeks. * 10 Stocks to Sell in Market-Cursed September The ETF twice topped out in the $148+ area, and has now retreated in five of the past six sessions. Investors who are looking for a long trade in TLT may consider buying on a test of the 50-day moving average. That's a reasonable risk/reward area with $137.50 just below. Notice how the recent decline in TLT has helped pave the way for a run higher in the banks? If you're not trading TLT, that's great, but consider keeping the ETF up on the monitor for a clue on what's going on with the banks. Top Stock Trades for Tomorrow 2: Bank of AmericaRemember a few weeks ago when we flagged the long trade in Bank of America (NYSE:BAC)? We liked this setup because of the reasonable risk/reward BAC stock was presenting buyers, as it bobbed near range support between $26 and $26.50.Now pushing toward $30, longs are likely considering booking some profits near current levels. I want to see if BAC stock can press into range resistance between $30.50 and $31. Top Stock Trades for Tomorrow 3: CitigroupCitigroup (NYSE:C) has a very similar setup, bouncing off $61 range support and now trying to hurdle $70. If it can, it puts a retest of $72 on the table, with a possible run up to trend resistance (blue line). On the downside, longs will want to see the 50-day moving average hold as support. Top Stock Trades for Tomorrow 4: JPMorganLike the two previous banks, JPMorgan (NYSE:JPM) held range support near $104. However, this one has a lot more "oomph" than the two above. Shares are already over $116 range resistance and making new highs. I'd love to see JPM continue higher, turning trend resistance (blue line) into trend support. At the very least though, see that $116 holds as support from here. Below could usher in a flush down to the 50-day moving average. Remember, as hot as some of these banks have been, they are still coming into or are near key resistance levels. In the past, these levels have held them in check, even when the news has been bullish. So stay disciplined, don't be greedy and let price guide your decision making -- not your bias! Resistance will either break and lead to higher prices or hold steady and send stocks lower. Top Stock Trades for Tomorrow 5: Goldman SachsGoldman Sachs (NYSE:GS) has really struggled, but man has this one been strong over the past few days. * 10 Battered Tech Stocks to Buy Now Over $221 and a continuation rally can take hold. However, if it rejects GS, look to see how it responds to a test of the 50-day. If it attracts buyers, another $220 test is in the cards. If it fails as support or has a tepid response, uptrend support (purple line) could be in the cards. Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long BAC and C. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 10 Battered Tech Stocks to Buy Now * 7 Strong-Buy Stocks Hedge Funds Are Buying Now * The 7 Best Penny Stocks to Buy The post 5 Top Stock Trades for Friday: A Bank Run in Play?Â appeared first on InvestorPlace.
Challenging operating backdrop and muted loan growth are likely to continue to adversely impact Morgan Stanley's (MS) prospects in the second half of 2019.
(Bloomberg) -- Citigroup Inc. expects revenue from its Middle East and Africa business to keep growing this year even as lower oil prices and political uncertainty weighs on the region.“We typically do much better than the economic growth rate, given our business model,” Atiq Rehman, chief executive officer of Citigroup’s new EMEA emerging markets cluster, said in an interview. “I am cautiously optimistic on emerging markets” and falling interest rates in the U.S. will be positive overall.The U.S. bank’s income in the region may rise by a high single-digit this year driven by its markets, cash management and investment banking businesses, Rehman said. Revenue growth may slow to a mid-single digit rate in 2020 after climbing at a compound annual rate of 10% in recent years.Economic growth in the Middle East and North Africa is expected to remain flat at 1.3% this year, according to International Monetary Fund forecasts. Weak oil prices are crimping the governments’ ability to spend and the prospects of a showdown between the U.S. and Iran has fueled concerns over growth in countries such as the United Arab Emirates and Saudi Arabia.Citigroup this week appointed Rehman head of its EMEA emerging markets cluster, which consists of three sub-clusters Middle East and North Africa; Sub-Saharan Africa; and Turkey, Russia, Ukraine and Kazakhstan. This group is expected to account for about 10% of the bank’s global profit, Rehman said.Citigroup this year has advised on some of the region’s biggest deals, including Saudi Aramco’s $69.1 billion acquisition of petrochemicals maker Saudi Basic Industries Corp. It’s also the top arranger of bond sales in Central and Eastern Europe, Middle East and Africa, according to data compiled by Bloomberg.To contact the reporters on this story: Arif Sharif in Dubai at firstname.lastname@example.org;Archana Narayanan in Dubai at email@example.comTo contact the editors responsible for this story: Stefania Bianchi at firstname.lastname@example.org, Alaa ShahineFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg Opinion) -- The audacious bid by Hong Kong’s stock exchange for its London rival is likely to fail – and that’s no bad thing.Hong Kong Exchanges & Clearing Ltd.’s unexpected $36.6 billion offer for London Stock Exchange Group Plc would create one of the world’s largest trading hubs. The cash-rich, equities-focused HKEX would gain an edge in fixed-income trading, but in a world where algos and bots handle much of the action, the bidder would do better to take a page from LSE’s playbook and look for bigger data sources. Hong Kong Exchanges calls its plan to create an Asian-European giant that’s open 18 hours a day a "vote of confidence in London and the United Kingdom’s future role as a global financial center” at a time that Brexit paralysis is clouding the outlook. The move also shows belief that, despite the recent protests, Hong Kong can still produce world-stage firms.The more than 300-year-old London exchange has a lot going for it, including fixed-income heft and the FTSE Russell portfolio of index benchmarks used by institutional investors. The offer values LSE shares at 8,361 pence (about $103), around 42 times 2019 earnings, according to Citigroup Inc. analysts, much higher than the London bourse’s historical average price-earnings multiple of 22 times. But Hong Kong Exchanges’ offer would scupper LSE’s own bid for data provider Refinitiv, a deal that LSE shareholders like as shown by its soaring share price. They, and politics, may stand in HKEX’s way. U.K. regulators will have a tough time accepting the takeover of a British institution by a Hong Kong company. Given the impact to global financial markets and the popularity among exchange-traded funds of the FTSE Russell indexes, U.S. regulators may also weigh in. HKEX Chief Executive Charles Li can argue that his firm is already a global company, having acquired the London Metal Exchange in 2012, but it remains a foundation stone of Hong Kong. The city’s government owns just 5.9% but appoints the majority of the directors. Exchange mergers are sensitive propositions anywhere. The LSE has been a frequent target and was in the sights of Germany’s Deutsche Boerse AG three years ago until Brussels blocked the deal. In the Asia-Pacific region, Singapore Exchange Ltd.’s 2011 bid for ASX Ltd. was rejected by Australian regulators on national-interest concerns.There are also questions over HKEX’s deal-making prowess. HKEX acquired the LME, the world’s biggest venue for trading base metals like aluminum, at the top of the commodities cycle. It promised LME members that it would have a warehouse in China from which to access the country’s massive metals market. Seven years later and it doesn’t, as Chinese authorities seek to protect homegrown commodities entities, including the Shanghai Futures Exchange and the Dalian Commodities Exchange.There is no doubt that HKEX needs to diversify. Volumes on the exchange have slumped and it has fallen off its perch as the world’s top IPO venue last year.Stock exchange businesses reliant on volatile volumes are increasingly passe in a world of computerized trading. With little overlap with LSE, Hong Kong Exchanges can’t count on simply cutting costs. The key to growth for exchanges is in the data that fixed-income, currency, and equities traders need and the analytical tools that deliver it to them. That’s why LSE has pursued Refinitiv. HKEX has depended on a strategy of being the gateway to China through its stock and bond trading links. The value of that role is diminishing as the country opens direct access to markets, removing quotas Tuesday on purchases by global funds. Wanting to go beyond Hong Kong to create a global powerhouse is understandable. Doing so with another market grappling with its own political crisis and uncertain future post-Brexit is less so. Li likened the Hong Kong exchange’s unsolicited takeover of LSE to a “corporate Romeo and Juliet.”He missed the point on how that story ended.To contact the author of this story: Nisha Gopalan at email@example.comTo contact the editor responsible for this story: Patrick McDowell at firstname.lastname@example.orgThis 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.
The longest bull market in history keeps charging. Stocks are near record highs, which sounds good, but it does create a problem for income investors. Specifically, where can they find dividend stocks poised for outperformance that still sport decent yields?The idea, after all, is to buy stocks when they're low, then sell high. And they don't seem too low when they're only a couple of percentage points below record levels. Stocks' lofty prices have crushed their yields, too. The trailing 12-month dividend yield on the S&P; 500 stands at a paltry 1.9%.High-quality dividend stocks with better-than-average yields do exist, however. We're here to help you find them.We scoured the S&P; 500 for dividend stocks with yields of at least 3%. From that pool, we focused on stocks with an average broker recommendation of Buy or better. S&P; Global Market Intelligence surveys analysts' stock ratings and scores them on a five-point scale, where 1.0 equals Strong Buy and 5.0 means Strong Sell. Any score of 2.0 or lower means that analysts, on average, rate the stock a Buy. The closer the score gets to 1.0, the stronger the Buy call.Lastly, we dug into research and analysts' estimates on the top-scoring names. That led us to these 25 great blue-chip dividend stocks that have the highest analyst ratings. SEE ALSO: The Berkshire Hathaway Portfolio: All 47 Buffett Stocks Explained
Since the beginning of the legal cannabis industry, the vast majority of investors in the space have been high-net-worth individuals and family offices. These groups were more able to make these investments ...
(Bloomberg Opinion) -- Financial markets at this point ignore just about any tweet from President Donald Trump about the Federal Reserve. Occasionally, one will merit a meme. But for the most part, the president’s tweets are dismissed either as evidence of frustration that he can’t simply fire Jerome Powell, his choice for Fed chair, or the search for a scapegoat if the U.S. economy falters and damages his re-election prospects.Then came this missive on Wednesday:The timing is obvious. It’s the day before the European Central Bank will presumably drop interest rates further below zero, and a week before the Fed’s own rate decision. A Washington Post-ABC News poll this week showed a majority of Americans fear the U.S. will enter a recession within a year. Stephen Moore, who withdrew his candidacy for the Fed board earlier this year, wrote a recent op-ed in the Wall Street Journal with the headline “Refinance U.S. Debt While Rates Are Low.”Put it all together, and you have Trump’s two-part tweet. Unfortunately, the self-proclaimed “king of debt” doesn’t appear to truly understand it. Let’s unpack the president’s comments piece by piece:The Federal Reserve should get our interest rates down to ZERO, or lessFirst, the Fed is already cutting its benchmark rate and is widely expected to drop it another 25 basis points on Sept. 18. A more significant reduction — and certainly to the extent the president wants — would probably just panic the markets. It could also severely damage banks, particularly if longer-term yields also tumble. Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co. this week already reduced their annual net interest income targets.Second, the idea that Americans would willingly accept negative interest rates is very much an open question. After all, it’s not something they have ever had to deal with before. As Katherine Greifeld wrote for Bloomberg Businessweek, U.S.-based investors don’t just have the good fortune of buying Treasuries at above-zero interest rates. They can also easily turn the world’s $15 trillion pool of negative-yielding debt positive.and we should then start to refinance our debt.This is not something that the U.S. does in any significant way. The federal government is not like a company that issues bonds that can be bought back if borrowing costs fall. There’s no mechanism, for example, for the Treasury to get big investors to give back bonds issued in 1995 that mature in 2025 and pay 7.625% interest. In fact, these are likely among funds’ most-prized possessions because they boost both the credit quality and average payout of the overall portfolio.INTEREST COST COULD BE BROUGHT WAY DOWN, while at the same time substantially lengthening the term.This is hardly a given. The Fed controls only short-term interest rates, not long-term yields. In 2010, when the fed funds rate was near zero, the 10-year Treasury yield was 4%. If central bankers slash interest rates when the economy is on solid footing, it could boost inflation, which would cause yields on longer-term obligations to climb. The reason long-term rates in Japan and Germany are at or below zero is because their economies are stagnant and inflation is largely nonexistent.As for “substantially lengthening the term,” the Treasury Department itself has found that there’s insufficient demand for ultra-long Treasuries that mature in 50 or 100 years. Yes, Treasury Secretary Steven Mnuchin is taking another look, but the bond-market group that advises him is likely to dismiss the idea again. Also, issuing ultra-long bonds would probably steepen the yield curve, again making the claim that “interest costs could be brought way down” dubious at best.We have the great currency, power, and balance sheetAnd yet, the president clearly wants a significantly weaker dollar, which, if done recklessly, could threaten its position as the reserve currency of the world. The USA should always be paying the lowest rate.It goes without saying to anyone who took Macroeconomics 101 that stronger economies pay higher interest rates. But setting that aside, why should the U.S. receive more favorable treatment than Germany? It has the same triple-A ratings from Moody’s Investors Service and Fitch Ratings, and Germany even has a top grade from S&P Global Ratings while the U.S. was dropped to AA+ in 2011.Plus, investors are begging Germany to borrow more, rather than stick to its rigid balanced budget. That’s of no concern whatsoever for the U.S. — its budget deficit grew to $866.8 billion in the first 10 months of the fiscal year, up 27% from the period a year earlier. The gap is now projected to reach $1 trillion by the 2020 fiscal year, two years earlier than previously estimated. Supply and demand isn’t everything in the Treasury market, but it is something. Obviously, the ECB has distorted the bond markets in its region. In Italy, which is barely rated investment-grade, 10-year debt yields less than 1%. But again, this is more a symptom of the lack of economic growth in the euro zone.No Inflation!Low inflation? Sure. But “no” inflation?On Wednesday, a Labor Department report showed underlying U.S. producer prices increased 2.3% in August from a year earlier, topping the median forecast in a Bloomberg survey. Producer prices excluding food, energy and trade services rose 0.4% from the prior month, the most since April.Those readings suggest Thursday’s consumer price index data could also meet or exceed expectations. Core CPI is already projected to rise to 2.3% year-over-year in August, which would be close to the fastest growth in the past decade. It’s fairly modest relative to the historical average, but it’s not nothing.It is only the naïveté of Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing.Is this the first tweet from President Trump with accent marks?It’s not naivete that is keeping the Fed from more drastic interest-rate cuts, but rather prudence and a focus on economic data. Fed officials saw some slight weakness earlier this year — business confidence was particularly rattled by the U.S.-China trade war — and provided a bit of accommodation to help ease concerns. Dropping interest rates to zero would serve little purpose except to most likely create a larger bubble in risky financial assets.The president seems to think that Europe and Japan want negative interest rates. I’m fairly confident that the ECB and Bank of Japan wish they were in a similar position as the Fed, which was finally able to move away from the zero-bound and now has some breathing room in the event of an economic downturn.A once in a lifetime opportunity that we are missing because of “Boneheads.”Readers can draw their own conclusions about who’s truly boneheaded. To contact the author of this story: Brian Chappatta at email@example.comTo contact the editor responsible for this story: Daniel Niemi at firstname.lastname@example.orgThis 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.
Investing.com – Intel (NASDAQ:INTC) shares were rising strongly Wednesday, along with chip stocks generally, but a report from Citigroup has warned that the chipmaker faces a bumpy road in the second half of the end of the year, with rival Advanced Micro Devices (NASDAQ:AMD) hot on its tail.
Barclays' (BCS) latest job-cut move in its Japanese fixed-income trading arm comes in response to the challenging operating backdrop across the globe.
The Zacks Analyst Blog Highlights: Caterpillar, General Motors, Citigroup, Northrop Grumman and Walgreens Boots