Blue Line CEO Jon Blumenthal on rare earths and the mounting trade war with China.
Blue Line CEO Jon Blumenthal on rare earths and the mounting trade war with China.
Gold gained on Thursday as a weaker dollar and Treasury yields bolstered bullion's appeal, ahead of U.S. weekly jobless claims and retail sales data that will shed light on the pace of recovery in the world's largest economy. Spot gold rose 0.6% to $1,747.10 per ounce by 0928 GMT. "Gold's holding up fairly well today... we've seen the dollar weaken and U.S. 10 year Treasury yields are softer as well," said CMC Markets UK's chief market analyst Michael Hewson.
(Bloomberg) -- Bond veteran Greg Wilensky has seen hype about a surge in inflation crushed too many times to get carried away with this year’s great reflation trade.“I’ve been managing bond portfolios for 25 years, through very large monetary programs, big deficits, and the Fed trying to raise inflation expectations,” the Janus Henderson money manager said in an interview. “As much as I can see legitimate reasons why it might happen this time -- I could have said that very often over the last 12 years too.”Wilensky’s skepticism epitomizes the cooling investor enthusiasm for bets linked to a rapid economic recovery and higher prices. Trades favoring economically-sensitive value stocks, steeper yield curves and a rebound in commodities have faltered after a stellar first quarter.The MSCI AC World Value Index has lagged its growth counterpart by about 6 percentage points since March 8. Benchmark Treasury yields have retreated some 13 basis points already this quarter, even as U.S. inflation data begin to beat expectations. And Tuesday’s strong 30-year Treasury auction suggested demand for even the most interest rate-exposed bonds is returning.One of the biggest questions money managers confront now is whether the stimulus-fueled rebound in growth and inflation -- in particular in the U.S. -- can transition to a sustainable expansion that will keep pushing equities and bond yields higher. The International Monetary Fund recently upgraded its 2021 global growth forecast to the strongest in four decades, but the outlook beyond that is less clear-cut.Envisaging a trajectory for price levels beyond this year is even harder for investors given the warping effect of coronavirus shutdowns, temporary supply bottlenecks and base effects from last year’s disinflation. A surge in five-year U.S. breakevens-- a gauge of inflation expectations -- has petered out since they hit their highest since 2008 in mid-March.Simple Math Is About to Cause an Inflation Problem: QuickTake“Inflation and rates, especially as a bond investor right now, is the call that you have to make,” said Elaine Stokes, fixed income portfolio manager at Loomis Sayles. “It’s the make-or-break call of your year.”The response to the stall for many investors has been to pare back some trades geared to the sharpest stage of the economic rebound. Vishal Khanduja, fixed income fund manager at Eaton Vance Management, has halved his portfolio’s overweight in U.S. inflation-linked bonds from the start of the year.“Inflation expectations were dislocated in 2020” in a “surgical recession,” Khanduja said. “The typical post-recession positioning that you see happen over multiple years is quickly going through the market.”Franklin Templeton’s Gulf Arab bond fund has removed its hedges against the risk of accelerating U.S. inflation, as it sees another spike in Treasury yields as “possible, not probable,” according to its Dubai-based manager.As for some traditional inflation hedges in the commodities markets, the story is about to get more complicated than the year-to-date rebound in oil and copper prices would suggest. Strategists at the BlackRock Investment Institute anticipate a divergence within the asset class, as factors such as climate risks are more fully captured in pricing.“The lift for oil from the economic restart is likely to be transitory, while some metals may benefit from structural trends such as the ‘green’ transition for years to come,” a team including Wei Li wrote in a note this week.Tremendous ChallengeMeanwhile, in the bond market, traders are not reacting to signs of inflation as one might expect. On Tuesday, data showed U.S. consumer prices climbed in March by the most in nearly nine years, yet 10-year Treasury yields fell five basis points to their lowest in three weeks.“The tremendous challenge right now, especially this year is that the quality of almost any of the numbers we’re looking at, whether it’s the short-term inflation numbers, the economic growth numbers, these things are being very much distorted by the economic volatility,” Janus Henderson’s Wilensky said.(Adds Franklin Templeton move in 10th paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
Gold may have risen following the release of the CPI data, but it was not because of concerns over inflation.
Wall Street indexes closed mixed on Wednesday, with the Nasdaq Composite and S&P 500 falling despite another record intraday high for the latter and big banks' stellar results on the first day of earnings season. Shares of Goldman Sachs Group Inc and Wells Fargo & Co rose 2.3% and 5.5% respectively on bumper first-quarter profits. Goldman capitalized on record levels of global dealmaking activity, and Wells reduced bad loan provisions and got a grip on costs tied to its sales practices scandal.
Oil prices surged more than 4% on Wednesday, after a report from the International Energy Agency, followed by U.S. inventory data boosted optimism about returning demand for crude. Brent crude futures rose $2.70, or 4.2%, to $66.37 a barrel by 11:05 a.m. EDT (1505 GMT). U.S. West Texas Intermediate (WTI) crude futures were up $2.78, or 4.6%, to $62.96 a barrel.
(Bloomberg) -- Federal Reserve officials are just as worried about an inflation rate that runs too cold as one that runs too hot.While rising prices are in the spotlight now as the economy reopens and demand surges, the longer-run trends that have suppressed costs globally could re-emerge as the pandemic ends, some policy makers warn. That would make it harder to deliver on their new strategy of running inflation above their 2% target for a time in order to achieve that goal over the longer run.“We are probably more likely to be successful with the new monetary policy regime than if we didn’t have it,” Boston Fed President Eric Rosengren said in a Bloomberg News interview this week. But based on the experience of the last decade “you have to take seriously the idea that it is not going to be that easy to get 2% inflation.”Investors are likely to hear more on the topic from Fed Chair Jerome Powell when he speaks at a event held by the Economic Club of Washington on Wednesday.Policy makers at the central bank have been pressed in recent weeks about whether an expected spike in prices -- as the U.S. rebounds from pandemic shutdowns -- will be a temporary blip or something more permanent and dangerous to the economy after a wave of unprecedented monetary and fiscal stimulus over the past year.For years, major economies including the U.S., Japan and the euro zone have struggled to raise inflation to 2% despite aggressive monetary policy actions. Aging populations, the impact of new technology and the disinflationary force of globalization are not things central banks can wish away, while rates stuck at zero -- or below -- telegraph the limits of their power.Inflation pessimism shows up in forecasts released by Fed officials’ at their March meeting as well. Even after taking account of the passage last month of President Joe Biden’s additional $1.9 trillion stimulus package in their forecasts, more than half of the 18 Fed officials estimated inflation would be around 2% or slightly below next year. A majority also forecast prices in a range of 1.9% to 2.2% for 2023.“Several participants commented that the factors that had contributed to low inflation during the previous expansion could again exert more downward pressure on inflation than expected,” minutes of the gathering showed said.March SpikeOn the other hand, a sharp jump in consumer prices last month is a reminder that the risks are two-sided. Both goods and services prices rose last month with the consumer price index rising 0.6% after a 0.4% gain in February as the end of pandemic lockdowns drove up the cost of gasoline, car rentals and hotel rooms, according to data released Tuesday.Rosengren said the Fed has never tried to shift to a new policy regime while exiting a pandemic amid aggressive fiscal stimulus. “We have to be pretty humble about how confident we are about what the inflation outcomes are going to be,” he said.Some indicators of longer-run inflation are starting to move higher, a sign that the Fed is at least getting the public’s outlook pointing in the right direction. The rate on the five-year, five-year forward swap contract for consumer-price inflation is hovering around 2.4%.That is up from a low last year of just under 1% during the peak pandemic lock down period. When adjusting for measurement differences between CPI and the Fed’s preferred measure -- the personal consumption expenditures price index -- it puts longer-run inflation pricing in at just a touch over the central bank’s 2% target.However, some market watchers -- like Fed policy makers -- see an enduring rise in inflation as a challenge.Interest-rate derivative markets don’t foresee the Fed lifting its policy rate beyond about 2% during the upcoming tightening cycle. That’s below the 2.5% Fed officials forecast last month for their long-run policy rate. This backdrop signals that traders don’t see much risk of inflation unmooring or growth getting too robust before the next downturn.“We are looking for a core CPI running closer to 1.9% or so,” after temporary base effects filter through the data, said Phoebe White, interest-rate strategist at JPMorgan Chase & Co. “That’s still pretty soft and we think the underlying trend in inflation is going to be pretty gradual to build as we look into 2022.”There are a range of forces that are likely to keep inflation low from the Fed’s perspective, including the millions of still-unemployed Americans. Slow changes in pandemic behavior -- even as vaccines roll out -- weak wage-bargaining power and an aging workforce could also keep overall demand moderate and prices muted.“We are of the view that we are going to continue to be in a lower inflationary environment both in the U.S. and globally,” said Steven Oh, head of fixed income at PineBridge Investments. “We are not necessarily going to be successful in reaching inflation targets on a sustainable basis.”The Fed also has limited tools. In its recent statement, the Fed pledged to keep rates at zero until “inflation has risen to 2% and is on track to moderately exceed 2% for some time.” But a pledge to do nothing also raises questions about the potency of policy. The U.S. central bank has a legacy of missing its 2% inflation target consistently since it was installed in 2012.“Really it’s about changing peoples’ mindsets and experience for the last ten years,” said Tiffany Wilding, economist at Newport Beach, California-based Pacific Investment Management Co.“You are going to need several periods, maybe several years, of inflation that is running above the Fed’s 2% target to really anchor those expectations, because they have moved down.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
Ahead of the Asia-Pacific opening, key global stock indexes scaled new peaks after upbeat U.S. and European earnings pointed to a strong recovery.
(Bloomberg) -- U.S. stocks climbed to record highs and bond yields fell as investors bet that a higher-than-forecast rise in inflation won’t be enough to slow economic stimulus measures.The S&P 500 closed at an all-time high even after the U.S. recommended pausing Johnson & Johnson vaccines amid health concerns. The tech-heavy Nasdaq 100 also set a record while the Dow Jones Industrial Average finished in the red. Consumer prices rose more than expected last month but investors speculated the acceleration was not fast enough to warrant any Federal Reserve policy change. The drop in yields weighed on bank shares.“The market has been skittish about rates for some time,” said Mike Loewengart, managing director of investment strategy at E*Trade Financial. “While this may cause some short-term volatility, investors have been pretty steadfast in their faith in a full economic recovery.”J&J shares fell as officials agreed to the pause and started an investigation into a link from its shot to rare and severe blood clots, while rivals Moderna Inc. and Pfizer Inc. advanced. The U.S. anticipates having enough other vaccines during the period.Fund managers across the world now see inflation, a taper tantrum and higher taxes as bigger risks than Covid-19, according to the latest Bank of America Corp. survey.“A lot of growth and inflation have already been priced into the market,” said Emily Roland, co-chief investment strategist at John Hancock Investment Management. “It’s almost as if you need to exceed those expectations in order to see a more pronounced reaction from markets.”Although policymakers at the Federal Reserve expect a bump in consumer prices to be short-lived, many traders disagree, with fears of faster CPI playing out across duration-heavy assets from bonds to tech stocks.Treasuries extended gains after the government’s auction of 30-year bonds was greeted with strong demand.Meanwhile, Bitcoin jumped to an all-time high as the mood in cryptocurrencies turned bullish before Coinbase Global Inc. goes public. Oil traded near $60 a barrel.Some key events to watch this week:Banks and financial firms begin reporting first-quarter earnings, including JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp., Morgan Stanley, Goldman Sachs Group Inc.Economic Club of Washington hosts Fed Chair Jerome Powell for a moderated Q&A on Wednesday.U.S. Federal Reserve releases Beige Book on Wednesday.U.S. data including initial jobless claims, industrial production and retail sales come Thursday.China economic growth, industrial production and retail sales figures are on Friday.These are some of the main moves in financial markets:For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- Zhejiang Geely Holding Group Co. is considering raising about $1 billion to help expand its iconic British sports and racing automotive business Lotus Cars into the electric vehicles market in China, according to people familiar with the matter.Geely is working with advisers to sound out potential investor interest in a funding round that could value Lotus’s EV operations at about $5 billion, the people said, asking not to be identified because the matter is private.Separately from the fundraising, the Chinese company is also weighing an initial public offering of Lotus Cars, or just the British carmaker’s EV business, as soon as next year, the people said. A listing could value the entire business, including its combustion-driven sports and racing cars, at more than $15 billion, the people said.Geely Automobile Holdings Ltd. shares rose as much as 7.6% on Wednesday in their biggest intraday gain since Jan. 26. The stock closed 5% higher, outperforming a 1.4% increase in the benchmark Hang Seng Index.Chinese billionaire Li Shufu’s Geely, which also controls Sweden-based Volvo Car AB, purchased a stake in Group Lotus in 2017. It owns 51% of the company, including both Lotus Cars and consultancy Lotus Engineering, while Malaysia’s Etika Automotive Bhd. owns the remainder, according to a press release. Under Geely, Lotus in 2019 launched its all-electric Evija hypercar, a 1,972-horsepower coupe that costs about $2 million.Considerations are ongoing and details including size and timing could change, the people said. A Geely representative declined to comment. Representatives for Lotus didn’t immediately comment when contacted by Bloomberg News.Geely is seeking to expand into electric vehicles amid a booming market in countries including China. Polestar, the electric carmaker controlled by Volvo Car and its owner Geely, is exploring options for going public as soon as this year, Bloomberg News has reported.Investor mania over EV-related stocks has pushed the share prices of players including Nio Inc. and Xpeng Inc. to stratospheric levels. That intense interest has also spawned a wave of EV upstarts raising billions and racing to list via special-purpose acquisition companies. More than $180 billion has been raised globally through SPAC IPOs in the past 12 months, Bloomberg-compiled data show.(Updates with Geely Automobile share price in fourth paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
ZURICH (Reuters) -Proxy adviser Glass Lewis urged Credit Suisse shareholders to oppose board member Andreas Gottschling's re-election, on grounds that as risk committee chairman he should be held accountable for problems tied to Greensill and Archegos. Switzerland's second-biggest bank has been reeling from the collapses of Greensill Capital and Archegos Capital Management, with a 4.4 billion Swiss franc ($4.75 billion) charge hitting its balance sheet after Archegos failed to meet margin commitments.
(Bloomberg) -- It’s just a quarter of the way through 2021 and stocks have already leaped past Wall Street’s year-end forecasts. They’ve jumped 10% and priced in so much optimism that it will take two more years for earnings to catch up.Is that enough for bulls? Nope. In a market that has plowed through records once every five days, the only things expanding faster than valuations are investor expectations. At Citigroup, an indicator that compares levels of panic to euphoria in the market has been pinned on elation all year, while a Bank of America model weighing optimism among sell-side analysts sits at a 10-year high.To be sure, animal spirits have calmed at the market’s loopiest edge, with penny-stock volume down and the meme craze receding. But robust appetite persists in its tamer -- and still speculative -- districts. And while fortunes would have been sacrificed repeatedly by anyone expecting this rally to overheat, the juxtaposition of stretched sentiment and a still-healing economy is a source of growing anxiety for professionals.“It is strange to see these sentiment measures elevated at the same time the economy is still recovering,” said George Mateyo, chief investment officer at Key Private Bank. “We’ve had a shot in the arm with respect to fiscal and monetary stimulus” and its impact on the economy “is likely to continue for a while longer, but at some point it’d fade.”Not that there aren’t a lot of reasons to stay optimistic, with many data points coming in stronger than expected, vaccine rollouts (mostly) continuing and earnings expected to buttress the bull case. Taking any single sentiment indicator at face value and relying on it as a sell signal could have meant missing out on one of the largest year-over-year rallies ever recorded.Sentiment readings “are hovering at extremely high levels and we could have been worried about them three months ago -- we could have been worried about them one month ago,” Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets, told Bloomberg TV. “They are telling us that the gains are going to be harder to come by, that if we do get negative catalysts, we are vulnerable to the downside. But I think it’s hard to view any of this data as an automatic sell signal right now.”Doubters point to everything from potential Fed tapering and tax hikes to the potential for fatigue among retail investors. A look under the surface already shows a shift in leadership that’s tilting toward companies whose growth is seen as more resilient during an economic slowdown. The frenetic buying of cyclical shares like energy and banks has cooled during the past month. Vaulting back to the top of the leader board are defensive stocks like technology, real estate and utilities.Bank of America’s “sell side indicator,” which aggregates the average recommended equity allocation by strategists, has risen for a third month to a 10-year high. But the cyclical rebound, vaccines and stimulus are all largely priced in already, wrote strategists led by Savita Subramanian. Meanwhile, a record amount of equity funds is being absorbed: Inflows to stocks over the past five months, at $576 billion, exceed inflows from the prior 12 years, according to the bank.Citigroup’s panic/euphoria model, which tracks metrics from options trading to short sales and fund flows, has remained in “euphoric” territory for much of this year, “generating a 100% historical probability of down markets in the next 12 months at current levels,” according to the bank’s chief U.S. equity strategist Tobias Levkovich.Options traders are placing bets the calm won’t last. The middle part of the VIX curve shows many are expecting volatility to pick up, with the spread between the VIX -- the market’s fear gauge -- and futures on implied 30-day volatility four months from now near the highest level in about five years. One trader last week wagered that the fear gauge will rise toward 40, and won’t be lower than 25, in July. The trader appears to have bought a total of about 200,000 call contracts, an amount almost as big as the total daily volume of VIX calls, based on the 20-day average.“Sentiment -- it’s not usually enough on its own to tip a bull market over, but it does mean that if there is something that causes the broad market to flinch, it can sell off quicker and harder,” said Ross Mayfield, investment strategy analyst at Baird. “When sentiment is running this hot, you’re hitting a new all-time high every day, at some point there will be a correction. Paying up for protection, if you have short-term money, makes plenty of sense.”Going all-in on equities for fear of missing out -- while staying protected against any downturn -- is the preferred posture of hedge funds. Lured by an almost uninterrupted rally since November, the industry has boosted their net exposure to equities to multi-year highs. Meanwhile, they’ve stepped up hedging through macro products such as index futures and exchange-traded funds. Their short sales on ETFs, for instance, increased 11% this year through March 26, according to data from Goldman Sachs Group Inc.’s prime brokerage unit.The hedged-long approach has gained traction on Wall Street. On Friday, JPMorgan Chase & Co. strategists led by Nikolaos Panigirtzoglou recommended investors hold on to risky assets such as stocks but add hedges through options in credit and stocks. One looming risk for the market is a continuing retreat from retail investors, a steadfast driver behind the yearlong bull market, they said.“We don’t believe that the equity bull market is yet exhausted,” the strategists wrote in the note. But “there is clear evidence of elevated equity positioning by retail investors and thus a vulnerability for the equity market going forward,” they said.Gene Goldman, chief investment officer at Cetera Financial Group, says his firm is looking for ways to de-risk its portfolios. “People are seeing the recovery, they’re seeing good things happening today, which is great, but it’s a classic case of ‘buy the rumor, sell the news’ and what they should be doing is looking six-to-nine months from now,” he said. “There are many headwinds that are going to hit the market.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
Traders awaited the next batch of earnings results and a slew of economic data Thursday morning.
(Bloomberg) -- For the euro area to achieve a jumpstart in economic growth with a consumption boom, a whole generation of citizens who hoard money rather than spend it would need to seize the day and splash out.That’s because a mass of savings built up by wealthier households stuck at home without restaurant visits or vacations during the coronavirus crisis is concentrated among older Europeans, who are less likely to open their wallets than younger counterparts.Whether that cohort of consumers will break with the norm and use their freedom to go out and spend when the pandemic abates is crucial in judging the recovery of most advanced economies. It’s most important in Europe however, which has the highest median age of any region of the world.The wall of money that could be unleashed is vast, with Barclays Plc estimating accumulated excess savings at 600 billion euros ($714 billion). But that bank is among those concerned that the clustering of that wealth among citizens known to be conservative with their cash may limit any benefits.“You should have a gradual release of savings,” said Davide Oneglia, an economist at TS Lombard. “Perhaps less pronounced than many expect, because a lot of these savings are sealed in a sector where households are particularly wealthy and less inclined to consume.”What Bloomberg Economics Says...“We estimate 300 billion euros more than might normally be expected poured into bank accounts last year. That cash pile is the biggest upside risk to our economic forecasts, if only consumers feel safe enough to spend it.”-Maeva Cousin. To read the full report click hereDeutsche Bank AG estimates pent-up demand could add about 1 percentage point to 2021 growth -- a sizable chunk for an economy the International Monetary Fund sees expanding 4.4%. UBS Group AG economist Dean Turner sees savings constituting a “substantial proportion” of the post-pandemic rebound, with consumer expenditure growth of 2.9% this year.Such a quantum would be critical to fueling a euro-area boom, not least because the region needs additional growth drivers as its recovery, hindered by slow vaccinations, lags that of the U.S. and China. Germany’s prolonged lockdowns prompted research institutes there to cut their joint 2021 growth forecast by a full percentage point to 3.7% on Thursday. Retail-sales data for the euro-area show spending on goods has generally held up well, even during later lockdowns. But it’s less clear how much of a rebound there will be in consumer-facing services when businesses reopen.Policy makers aren’t holding their breath. European Central Bank data show extra cash chiefly accrued to those older than 50 over the past year, while people aged 16 to 49, with a greater propensity to spend and a higher risk of unemployment, saw their financial situation deteriorate.For Gloria Sattél and Alfons Pribek, an Austrian couple whose pre-crisis spending habits included frequent restaurant meals, regular opera and theater visits, week-long spa stays twice a year and also trips to Greece, Germany and France, an end to lockdowns might not revive their old consumption habits any time soon.“We’ll be heading to the spa as soon as it opens, but beyond that we’re holding off on planning anything,” said Sattél, 78, who lives with her 81-year-old husband in central Vienna. “We’ve been generous with ourselves in the last year, but there’s money left over and there simply won’t be that many opportunities to spend it.”With such people in mind, the ECB is taking a cautious view. Its latest forecasts assume the savings rate, which nearly doubled to 25% during lockdowns last year, would eventually return to pre-crisis levels -- while excess hoarding during the period wouldn’t be substantially reduced.Cash HoardThe sheer size of the cash hoard waiting on the sidelines is giving some euro-zone officials pause for thought about the possibility of a spending binge. The Bundesbank reckons excess savings in Germany increased by 110 billion euros last year, and its counterpart in France estimates households there hoarded as much as 120 billion euros.Even so, a recent German survey suggests pent-up demand is much lower than additional savings. There’s also the issue of economic uncertainty, which may brake spending, particularly if people worry their jobs might be on the line once labor-market support programs expire.“The absolutely key factor for transforming these savings into spending and direct support for activity is confidence,” Bank of France Governor Francois Villeroy de Galhau told France Culture radio this week.European Commission data show euro-area households’ savings patterns are improving though their interest in a major purchase over the next 12 months is still only somewhat above average.“People are aware that a lot of government support underpinning the economy and the labor market specifically will have to be unwound,” said Aline Schuiling, economist at ABN Amro Bank NV. “So they’re cautious about spending money on things that aren’t essential.”(Updates with German economic outlook in seventh paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- As Japan’s life insurers lay out their annual strategies this month, traders will be looking for the answer to one question -- what do some of the world’s biggest investors plan to do about Treasuries?With the path of Treasury yields set to determine investments across the financial world, the intentions of a large cohort of the biggest foreign holders of U.S. government debt will be a crucial input. Japanese investors were on track to be net sellers of Treasuries for the sixth year in seven in their fiscal year to March, according to U.S. Treasury data through January. Some predict a return to purchases in 2021.With combined assets equivalent to $3.6 trillion, and one-quarter of this in foreign securities, even minor shifts in Japanese insurer allocations can impact markets. Furious selling by Japanese funds in February helped fuel the biggest monthly decline in Treasuries since 2016, and with benchmark yields close to their highest in a year, bond investors are keen to know at what levels lifers will become more inclined to buy.“Life insurers are expected to be aggressive about investing in foreign bonds, and are probably looking for the right timing to buy when markets settle down,” said Hiroshi Yokotani, managing director and portfolio strategist for fixed income and currencies at State Street Global Advisors. “The U.S is seen to be the most attractive destination taking account of hedge costs.”Life insurers will start announcing their allocation plans for the new fiscal year later this month. Among them are the nation’s leading Nippon Life Insurance Co. and Japan Post, which is also known as Kampo Life.Treasuries AttractionAfter reaching a record closing low of around 0.5% last August, the 10-year Treasury yield has rebounded and traded at just over 1.60% on Wednesday. That increase makes Treasuries relatively more attractive to some of the credit products which have been preferred by Japan’s life insurers in recent years, where spreads have tumbled close to historic lows.“Credit investment has depressed spreads to historically expensive levels, so investing in Treasuries looks safer in the longer run,” said Akio Kato, general manager of strategic research and investment at Mitsubishi UFJ Kokusai Asset Management. “Abundant cash held by investors will keep money flowing into credit but it’s doubtful if the size will be big.”Given the recent flattening of the U.S. 10-year/30-year yield curve -- where the spread was about 68 basis points on Wednesday -- lifers may wait until it steepens back toward 100 basis points before buying Treasuries, Kato added.For State Street’s Yokotani, Treasuries are also more attractive than agency bonds -- such as those of Freddie Mac or Fannie Mae -- which tend to be more volatile when yields are rising.Hedge CallAside from choosing where to invest, Japanese investors also have to decide whether to hedge out their currency risk or not. The yen was the worst-performing Group-of-10 currency in the first quarter of 2021 and is down over 5% against the dollar year-to-date.Short-term rates pinned at low levels have kept hedging costs near historic lows, providing a favorable environment. Japanese investors currently get a yield of almost 1.3% from a 10-year Treasury note after taking account of hedging costs, compared to just 0.65% for local 30-year government bonds.“Returns generated from currency-hedged U.S. Treasuries investment could be too attractive to resist,” said Satoshi Nagami, head of the global strategies investment group at Sumitomo Mitsui DS Asset Management Co. Japanese investors “wouldn’t be too aggressive early in the new fiscal year, but I don’t think they feel negative about allocating funds into overseas debt this year.”Life insurers extended a net sale of foreign bonds for a ninth consecutive month in March, the longest ever streak in Ministry of Finance data going back to 2001. That made them a net foreign bond seller for a fiscal year for the first time in seven years.Still, not everyone is convinced Japan’s investors will rush back into Treasuries given the risk yields could continue to rise -- Masahiko Loo, fixed-income portfolio manager at AllianceBernstein Japan in Tokyo sees credit continuing to attract more interest. But a consensus does seem to have formed on where they will invest.“This year, Japanese investor strategy will be simple, to focus on the U.S.,” Loo said.(Corrects timing of announcements in fifth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- U.S. banking giants JPMorgan Chase & Co. and Wells Fargo & Co. are pointing to fresh trouble in their loan business, but it’s not the wave of defaults feared a year ago.Bankers say borrowers are paying down balances and aren’t demanding more financing in a sign that American consumers and corporations are ready to propel an economic rebound.Total loans at Wells Fargo slumped 15% in the year through March, while at larger rival JPMorgan they dropped 4%, according to earnings reports Wednesday. Both business and household loans declined -- normally a dark sign for banks’ future earnings that caused their stock prices to dip in early trading.But, according to the bank leaders, it suggests something positive for the U.S. economy, underscoring that millions of people and businesses, helped by government rescues and robust debt markets, have managed their finances through lockdowns and are poised to unleash a wave of spending.“The consumer has so much money they’re paying down their credit card loan -- which is good,” JPMorgan Chief Executive Officer Jamie Dimon said Wednesday. “So the consumers have $2 trillion more cash in their checking accounts than they had before Covid. That’s also true on the business side, where businesses took advantage of huge financing in the marketplace to raise a lot of cash.”The figures extend a pandemic-era trend: Banks haven’t been plowing a swell of deposits back into their traditional bread-and-butter business of making loans.At JPMorgan, the nation’s largest bank, loans now equate to 44% of its deposits, down from 57% this time last year and 64% two years ago. Federal Reserve data show it’s happening broadly. The 25 largest U.S. banks, which collectively hold more than $10 trillion in deposits, watched loans and leases drop 8% from last year. The gap between their capacity to lend and their actual lending is now the widest in 36 years of weekly Fed data.To bank executives, the culprits behind the slump are easy to identify. The U.S. government keeps fattening household finances with stimulus checks and offering small businesses forgivable loans. The Fed has bought up mortgage bonds and Treasuries at such a pace that it’s driven down the cost of borrowing across the U.S. economy to near record lows, enabling corporations and other organizations to cheaply tap debt markets.“When they raise cash in the public markets, they pay down loans to banks,” Dimon said. “But this is not bad news about loan demand. This is actually good news.”The silver lining wasn’t enough to lift JPMorgan’s stock. It fell 1.8% as of 3 p.m. New York time. Wells Fargo slid before gaining on signs of progress in the scandal-ridden firm’s overhaul. Bank of America Corp. and Citigroup Inc. are set to report quarterly results on Thursday.Less lending and low interest rates take a toll on banks’ bottom lines. At JPMorgan, net interest income fell to 40% of total revenue, its smallest quarterly share in at least a decade, data compiled by Bloomberg show. Interest income at Wells Fargo fell to its lowest portion of companywide revenue since 2012.The economy will be significantly more active in this year’s second half, and households may start carrying bigger tabs on their credit cards then or a bit later, JPMorgan Chief Financial Officer Jennifer Piepszak said.“With vaccine distribution accelerating, I’m hopeful that we will be shifting to a more normal way of life soon,” Wells Fargo CEO Charlie Scharf told analysts. “If the economy continues to pick up, we would expect to see increased loan demand from our commercial customers in the second half of the year.”Scharf added that many people are being left behind by the recovery, and that they may need more help.Lending StandardsIt’s hard to know just how conservative banks have become when it comes to lending money. One sign of their appetite for risk can be found in their loan delinquency rates. The riskier the loan, the higher the chance that borrowers may fall behind.At JPMorgan, the share of mortgage, credit card and auto loans at least 30 days late has fallen by around a half percentage point from last year. Loss rates on credit cards this year so far are below the bank’s pre-pandemic expectations, Piepszak told analysts.Still, she told journalists, JPMorgan isn’t willing to loosen its lending standards to make more loans.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- Turkey’s central bank is likely to leave its benchmark interest rate unchanged in the first monetary policy meeting of its newly appointed governor.Installed after President Recep Tayyip Erdogan abruptly fired his predecessor following a bigger-than-expected rate increase, Sahap Kavcioglu is under pressure to reduce rates but has so far signaled he would not rush to loosen the stance he inherited.All but two respondents in a Bloomberg survey of 25 analysts expect the central bank to keep the one-week repo policy rate at 19% on Thursday. The dissenters, HSBC Bank PLC and Capital Economics Ltd, predict the meeting will deliver a reduction of 50 and 200 basis points, respectively.“Kavcioglu’s initial communication to markets has done enough to alleviate apprehensions about a major policy reversal at the April meeting,” said Ehsan Khoman, Head of Emerging Market Research for Europe, Middle East and Africa at MUFG Bank in Dubai. Turkey “does not have the policy room to lower rates this year given the elevated inflation outlook” but Kavcioglu’s dovish views suggest the central bank will eventually take a more accommodative stance.In a written interview with Bloomberg after his appointment last month, Kavcioglu said markets shouldn’t view a rate cut at the April 15 Monetary Policy Committee meeting as a given, easing some concerns among investors.Turkey raised its benchmark one-week repo rate by 200 basis points on March 18, at Naci Agbal’s final rate-setting meeting as governor, citing concerns about inflation. A professor of banking, Kavcioglu was among the critics of that move, saying it could damage economic growth.Last week, Erdogan said the government was determined to both reduce inflation and cut interest rates to single digits, prompting a slide in the lira. The currency has weakened more than 10% against the dollar since the unexpected appointment of Kavcioglu.What Our Economists Say:“Turkey President Recep Tayyip Erdogan would like the new-look central bank to lower interest rates, but market forces will likely delay the delivery of his orders. With inflation rising and the lira weakening, we expect the monetary policy committee to keep rates on hold when it meets on Thursday.” --Ziad Daoud, Bloomberg Economics (Read More: Market Forces to Keep Turkey Central Bank on Hold)Inflation accelerated to an annual 16.2% through March, up from 15.6% the previous month because of a global oil rally and weaker currency, leaving the new central bank chief little room to enact the interest-rate cuts that would mollify Erdogan, who holds the unorthodox view that high interest rates cause inflation.Among the dissenters, Jason Tuvey, senior emerging markets economist at Capital Economics, said they are basing their forecast of a big rate cut more “on the basis of pressure from Erdogan.”“If I was governor, I would hike interest rates,” he said, “but I’d probably get sacked the next day.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
EUR/USD settled above the 50 EMA and is testing the next resistance at 1.1965.
The direction of the June U.S. Dollar Index early Thursday is likely to be determined by trader reaction to 91.555.
The IRS commissioner says the child credit payments will arrive on time after all.
U.S. stock indexes rose on Wednesday after upbeat earnings reports from Goldman Sachs and JPMorgan boosted investor expectations of a strong rebound for corporate America amid swift COVID-19 vaccinations. Goldman Sachs Group Inc rose 3.3% after it reported a massive jump in first-quarter profit, capitalizing on record levels of global dealmaking activity. JPMorgan Chase & Co's shares fell 1.1% even as the largest U.S. bank's earnings jumped almost 400% in the first quarter, as it released more than $5 billion in reserves it had set aside to cover coronavirus-driven loan defaults.