Feb.22 -- Kenneth Akintewe, head of Asian sovereign debt at Aberdeen Standard Investments, discusses India’s economy, bond yields and RBI policy. He speaks on “Bloomberg Markets: Asia.”
Feb.22 -- Kenneth Akintewe, head of Asian sovereign debt at Aberdeen Standard Investments, discusses India’s economy, bond yields and RBI policy. He speaks on “Bloomberg Markets: Asia.”
(Bloomberg) -- New Zealand’s government will require the central bank to take account of rampant house prices when it sets interest rates, a change that may restrict its ability to run loose monetary policy.The Reserve Bank’s remit will be amended so that the bank considers “the impact on housing when making monetary and financial policy decisions,” Finance Minister Grant Robertson said in a statement Thursday in Wellington. The New Zealand dollar jumped to its highest since 2017 as investors ramped up bets on higher interest rates.The government is under political pressure to cool an overheating housing market, which has been fueled by record-low borrowing costs after the RBNZ responded to the coronavirus pandemic by slashing its cash rate and embarking on quantitative easing. Governor Adrian Orr pushed back against Robertson’s proposal when it was first made last year, saying that forcing the bank to consider house prices when setting rates could lead to below-target employment and inflation.“The more objectives you’ve got, the more complicated it can be to meet all those objectives,” said Nick Tuffley, chief economist at ASB Bank in Auckland. “Inflation and employment is what they will focus on, but they have to think harder about how their decisions impact on the housing market.”The kiwi dollar jumped about a third of a U.S. cent to 74.55 cents, its highest since August 2017. Bond yields and swap rates also rose on news of the changed remit, which comes into force on March 1. Investors are now pricing a 30% chance of a rate hike in November, even though the RBNZ yesterday sought to damp bets on tighter policy and said it could cut rates further if needed.Robertson ‘In Charge’“The market is saying no more rate cuts, so push the kiwi higher,” said Jason Wong, currency strategist at Bank of New Zealand in Wellington. “The RBNZ has shown its independence by saying ‘we don’t like this measure,’ but they are going to have to live with it because the finance minister’s in charge.”Robertson said today that the RBNZ’s objectives and mandate remain the same, which is to maintain price stability, support full employment and promote a sound and stable financial system.But a change to the Monetary Policy Committee’s remit will force it to “assess the effect of its monetary policy decisions on the government’s policy.” A clause has been added stating that the government’s policy “is to support more sustainable house prices, including by dampening investor demand for existing housing stock, which would improve affordability for first-home buyers.”“The committee retains autonomy over whether and how its decisions take account of potential housing consequences, but it will need to explain regularly how it has sought to assess the impacts on housing outcomes,” Robertson said.Robertson also issued a direction under the Reserve Bank Act requiring the bank to have regard to government policy on housing in relation to its financial policy functions.In a statement Thursday, the RBNZ said it “welcomes the direction it has received today from the Minister of Finance.” It said changes to financial stability policy are “in tune with our recent advice.”The bank acknowledged the change to its monetary policy remit but noted its targets “remain unchanged.”“The adjustments increase the focus on understanding and communicating the impact of the bank’s decisions on house price sustainability,” Orr said in the statement. “We have a long-standing commitment to transparency about our policy actions and approaches, and this will continue.”Soaring house prices have raised concerns that first-time buyers are being locked out of the market. Much of the surge has been attributed to investors taking advantage of low interest rates.The RBNZ, which predicts prices will rise 22% in the year through June, is reinstating mortgage lending restrictions and will tighten them further for investors from May 1.Orr in December recommended that the bank be required to address the issue of rapid house-price inflation via financial policy, and requested it be allowed to add debt-to-income ratios to its macro-prudential toolkit.Robertson said today he has asked the RBNZ to provide advice on interest-only mortgages and debt-to-income ratios. He would want the latter to apply only to investors, he said.“Today’s announcement is just the first step as the government considers broader advice about how to cool the housing market,” Robertson said. “We know the rapid increases we have seen in recent months are not sustainable, which has meant many first-home buyers are struggling to access the market. We’ll be making further announcements in the coming weeks on other policy responses.”(Includes chart)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) -- Yields on U.S. debt blew past another set of closely-watched levels, a warning sign for riskier assets that have benefited from exceptionally loose financial conditions amid the pandemic.The 10-year U.S. real yield -- which strips out inflation and is seen as a pure read on growth prospects -- climbed eight basis points to minus 0.71% on Thursday, surpassing a high of minus 0.75% set days after the U.S. presidential election in November. Nominal yields also soared, with the rate on 10-year Treasuries rising to as high as 1.47%, the highest reading in a year. Its 30-year counterpart hit a similar milestone, climbing rapidly above 2.30%.It’s been a frenetic week for bonds globally, with yields climbing to levels last seen before the coronavirus spread worldwide. Central banks have attempted to soothe markets, with European Central Bank chief economist Philip Lane saying the institution can buy bonds flexibly and Federal Reserve Chairman Jerome Powell calling the recent run-up in bond yields “a statement of confidence” in the economic outlook. While higher real rates signal growth is gaining traction, investors are growing uneasy over the sustainability of the recovery, and whether stimulus will feed into ever higher prices.“While risk assets continue to find buyers on pretty much any and every dip, the upward shift in real yields largely driven by oil and commodity prices offer grounds for caution,” said Marc Ostwald, global strategist at ADM Investor Services. “The U.S. 10-year nominal yield at 1.40%, too, is now only a shade below the S&P 500 dividend yield,” a popular valuation metric for equities.Convexity HedgingAdding to the bond rout are forced sellers in the $7 trillion mortgage-backed bond market, who are likely unloading the Treasury bonds they hold with long maturities or adjusting derivatives positions to compensate for the unexpected jump in duration on their mortgage portfolios. It’s a phenomenon known as convexity hedging, and the extra selling has a history of exacerbating upward moves in Treasury yields -- including during major “convexity events” in 1994 and 2003.Convexity Hedging Haunts Markets Already Reeling From Bond RoutOver in Europe, peripheral countries have led a sell-off in the region, with Italy’s 10-year yield spread over Germany climbing back above 100 basis points. Core debt was not spared from the rout, with yields on France’s benchmark debt turning positive for the first time since June.Clear DisquietEconomic leaders the world over are making clear their disquiet. Apart from ECB’s Lane, Executive Board Member Isabel Schnabel weighed in, saying in an interview published Thursday that the central bank has a close eye on financial markets because a sudden rise in real interest rates could pull the rug out from under the economic recovery.Powell Goes Easy on Surging Yields While Central Bank Peers FretElsewhere, the Bank of Korea warned it will intervene in the market if borrowing costs jump, while Australia’s central bank resumed buying bonds to enforce its yield target and the Reserve Bank of New Zealand Wednesday promised a prolonged period of stimulus even as the economic outlook there brightens. Emerging market investors, meanwhile, are fixated on the where short-end U.S. yields go which could halt market resilience there.The latest leg of the bond selloff has drawn only a mild reaction from equity markets. S&P 500 futures fell 0.4%, while the Stoxx 600 Europe index erased earlier gains of as much as 0.5%. Yet investors are increasingly on guard for a pullback in stocks, with an eye on the pace of the moves in real yields.“You have to look at real yields,” Christian Nolting, chief investment officer at Deutsche Bank Wealth Management, said in a Bloomberg Radio interview. “If real yields are really rising and rising fast, that in the past has always been an issue for stocks. So it’s very important to watch.”(Adds context and price action throughout.)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.
Charlie Munger, vice chairman of Berkshire Hathaway and long-time business partner of Warren Buffett, issued a strong condemnation of the businesses he said enabled the recent frenzy of speculative trading by retail investors.
Munger says the argument for diversification should be called 'diworsification.'
Oil prices extended gains for a fourth session on Thursday to reach the highest levels in more than 13 months, underpinned by an assurance that U.S. interest rates will stay low, and a sharp drop in U.S. crude output last week due to the storm in Texas. Brent crude futures for April gained 33 cents, 0.49%, to $67.37 a barrel by 0925 GMT, while U.S. West Texas Intermediate crude for April was at $63.45 a barrel, up 23 cents, 0.36%. Both contracts hit their highest since Jan. 8, 2020, earlier in the session with Brent at $67.70 and WTI at $63.79.
There are signs some of the excessive leverage had been wrung out of the market, implying the potential for a fresh more to the upside, analysts said.
China's Geely Automobile and its Swedish sister company Volvo Cars will abandon merger plans but launch a new entity to combine their powertrain operations and expand cooperation on electric vehicles, the companies said. A year ago the two said they were planning to merge, giving Volvo access to public markets, as global automakers pursue alliances to respond better to the cost of the transition to electric cars, tougher emission rules and autonomous driving. Geely and Volvo on Wednesday said they had decided to preserve their existing separate corporate structures after "a detailed review of combination options" but would launch a new company to combine their existing powertrain operations.
(Bloomberg) -- Kweichow Moutai Co. investors are selling their shares at the fastest pace in more than two years, a warning for a market that owes much of its rally to a handful of large caps.The biggest stock listed in mainland China has lost $80 billion since onshore markets reopened after the Lunar New Year holiday. Wednesday’s 5.1% drop put Moutai’s five-day decline at 16%, the biggest for such a period since October 2018. The company had rallied 30% this year through its Feb. 10 record close.Momentum trades are cracking after the CSI 300 Index briefly surpassed its 2007 closing peak. Chinese traders were griping about a lack of market breadth before the holiday and extreme valuations for some of the most-loved stocks. Less than 10 companies accounted for half of the returns on the benchmark -- including Moutai -- with foreign investors and domestic mutual funds compounding the problem by buying the most liquid megacaps.“This is the beginning of the end for baijiu’s outrageous valuations and the mark of a massive shift to value stocks,” said Dong Baozhen, fund manager at Beijing Lingtongshengtai Asset Management. The big baijiu gains of the past year “have become a prisoner’s dilemma - whoever sells first wins.”Triggers for the reversal include signals on tighter monetary policy from the central bank. The People’s Bank of China is withdrawing liquidity from the financial system, while local media ran a front-page editorial this week saying China’s economic recovery is creating the conditions for the central bank to “normalize” monetary policy.The CSI 300 ended 2.6% lower, with the consumer staples sector that includes baijiu down 4.5%. Health care, which had also been among the market’s best performers until the holiday, dropped 4.4% Wednesday to cap its biggest three-day drop since December 2018.Other makers of baijiu -- a popular liquor in China -- are among the worst performers on the CSI 300 in the past five days, with Shanxi Xinghuacun Fen Wine Factory Co. down 22% and Luzhou Laojiao Co. losing 21%. The Securities Times newspaper on Tuesday listed three major concerns around the baijiu trade, including record-high valuations, overly heavy positioning by institutional investors and the demise in popularity of the spirit among the younger generation.A high-profile fund managed by a star manager Zhang Kun, known for his outperformance in recent months and heavy allocation in the baijiu sector, suspended new orders starting Wednesday. The industry accounted for about 40% of the fund’s holdings, according to a fourth-quarter filing, with top positions including Moutai.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.
Electric-car maker Fisker Inc said it will work with Apple Inc supplier Foxconn to produce more than 250,000 vehicles a year beginning in late 2023, sending its shares up 18%. The deal, codenamed "Project PEAR" (Personal Electric Automotive Revolution), is looking at markets globally, including North America, Europe, China and India, Fisker said. Foxconn, Apple's main iPhone maker, has ramped up its interest in electric vehicles (EVs) over the past year or so, announcing deals with Chinese electric-car maker Byton and automakers Zhejiang Geely Holding Group and Stellantis NV's Fiat Chrysler unit.
The largest U.S. oil producer is reeling from the sharp decline in oil demand and a series of bad bets on projects when prices were much higher. Exxon's reserves are at their lowest since the merger between Exxon and Mobil in 1999 and were "a result of very low prices during 2020 and the effects of reductions in capital expenditures," the company said in a filing. Total reserves for all products fell to 15.2 billion barrels of oil and gas at the end of 2020 from 22.4 billion the year before, mostly driven by oil sands in Canada and U.S. shale gas properties, according to the filing.
Berkshire Hathaway vice chairman Charlie Munger unloaded on bitcoin, showing that his views haven't changed since Warren Buffett and Munger last opined on the digital asset.
(Bloomberg) -- Exxon Mobil Corp. erased almost every drop of oil-sands crude from its books in a sweeping revision of worldwide reserves to depths never before seen in the company’s modern history.Exxon counted the equivalent of 15.2 billion barrels of reserves as of Dec. 31, down from 22.44 billion a year earlier, according to a regulatory filing on Wednesday. The company’s reserves of the dense, heavy crude extracted from Western Canada’s sandy bogs dropped by 98%.In practical terms, the revision clipped Exxon’s future growth prospects until oil prices rise, costs slide or technological advances make it profitable to drill those fields. Exxon has enough reserves to sustain current production levels for 11 years, down from 15.5 years a year ago, based on Bloomberg calculations.The pandemic-driven price crash that rocked global energy markets was the main driver of Exxon’s reserve downgrade, along with internal budget cuts that took out a significant portion of its U.S. shale assets. The oil sands have historically been among the company’s higher-cost operations, making them more vulnerable to removal when oil prices foundered.Price SensitiveThe reserves accounting doesn’t mean Exxon is closing up shop or walking away from Canada because the company can bring them back onto its ledger as crude prices rise.“Among the factors that could result in portions of these amounts being recognized again as proved reserves at some point in the future are a recovery in the SEC price basis, cost reductions, operating efficiencies, and increases in planned capital spending,” Exxon said in the filing.The blow to future production potential comes just weeks after Exxon posted its first annual loss in at least four decades. Exxon shares were little changed at $56.85 in after-hours trading and have advanced 38% this year.The Wall Street Journal reported last month that Exxon was being investigated by the U.S. Securities and Exchange Commission for allegedly overvaluing a key asset in the Permian Basin. Exxon has said the allegations are demonstrably false.CEO’s PrioritiesExxon previously flagged that low prices could wipe as much as one-fifth of its oil and gas reserves from its books but steep cuts in drilling expenditures also imperil the assets its able to keep on the books.Chief Executive Officer Darren Woods has prioritized high-return projects such as offshore oil in Guyana, shale in the Permian Basin as well as chemical and gas operations along the Gulf Coast in order to defend the company’s dividend. This year’s rally in oil prices will help bolster Exxon’s cash generation, which in recent quarters has failed to cover both its capital spending and dividend, leading to an increase in debt to almost $70 billion.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.
Even after a price plunge of more than $10,000 over the past couple days, analysts see further selling ahead.
(Bloomberg) -- Bond traders keep probing the limits of central banks’ patience, and nowhere is that clearer than in Australia, where policy makers are struggling to defend their yield target.The Reserve Bank of Australia bought A$5 billion ($4 billion) of bonds Thursday, matching the record last March when it began quantitative easing. That eventually brought the targeted three-year yield down, but only after it hit a two-month high. A selloff that began in New Zealand also widened to Treasuries and Japanese debt, as the world’s sovereign bonds head for their worst month since April 2018.“The Australian bond market is in many ways caught in the crossfire of what’s happening in U.S. Treasuries,” said Chamath De Silva, a portfolio manager at BetaShares Holdings in Sydney and a former fixed-income trader at the central bank. “I don’t see it as the market deliberately testing the RBA so much as global central bank dovishness in general.”A $9 trillion rescue mission by central banks to haul the global economy out of its coronavirus recession is being tested by inflation bets that are threatening their ability to keep borrowing costs down. The intensifying bond rout is forcing a rising tally of money managers to scale back market exposures while Wall Street strategists pare back their bullish playbooks.Read: When Listening to the Central Bank Goes WrongAustralia’s 10-year yield closed at its highest since 2019, having surged more than 75 basis points this year. The benchmark Treasury yield has hit 1.4%, and is headed for the steepest monthly advance since the November 2016 bond rout set off by President Donald Trump’s election win.Yields in every major market have jumped.Policy makers are trying to push back against the rising tide of yields, from Fed speakers stressing they will look through short-term inflation spikes to European Central Bank President Christine Lagarde “closely monitoring” government debt yields. The Bank of Korea warned it’ll intervene in the market if borrowing costs jump and the Reserve Bank of India is deploying a range of tools in the face of a market revolt.That’s not enough to stop the growing challenge from bond traders, who are pushing the limits of central banks’ patience while debt auctions are starting to struggle. Investment firms including BlackRock Inc.’s research arm and Aberdeen Standard Investments are retreating from government bonds.Read: Bond Backlash Spurs Tepid Demand at Five-Year Treasury SaleIn Australia, skepticism has grown that the RBA will maintain its guidance to keep borrowing costs steady into 2024. That’s been highlighted by the unraveling of a popular trade based on selling April 2024 bonds and buying November 2024 notes in anticipation that the central bank’s target will shift to the later maturity debt.Australia’s rapid economic recovery has emboldened traders, as the country suppresses Covid-19 and massive stimulus encourages households to spend and firms to hire. A further boost has come from the price of iron ore, Australia’s largest export, which crashed through $170 a ton and is closing in on a record.What Bloomberg Economics Says...“The RBA is pulling out the stops to counter a rise in bond yields, which have been swept up in a global updraft. In a surprisingly forceful move, it announced its largest purchase of Australian government bonds since it began the program in March.”-- James McIntyre, economistFor the full note, click here.Yet, there is wide disconnect with policy makers expectations.RBA Governor Philip Lowe does not anticipate any rapid recovery in inflation. He noted that before the pandemic, when unemployment had a 4 in front of it, it still failed to generate the sort of wage gains that would be needed to return CPI sustainably to the 2-3% target. Australia’s most recent annual inflation reading was just 0.9% and the jobless rate stands at 6.4%.The central bank is expected to keep policy settings unchanged when it meets on Tuesday.RBNZ MandateNew Zealand bonds kicked off the rout in Asia on Thursday after the government announced it will require the central bank to take account of house prices when it sets interest rates. The losses accelerated as the bid-to-cover ratio at an auction dropped to the lowest since 2012.Money markets are now pricing in a rate increase in New Zealand for mid-2022, suggesting it could be the first major central bank to hike.Yields on the 10-year benchmark surged 18 basis points -- the largest move since April -- to 1.87%. Japanese bonds were also sold, with the benchmark 10-year yield rising to the highest since 2018, while the yield curve steepened.“As yields look set to still rise gradually, this isn’t an environment where investors want to buy even if levels are attractive enough,” said Naomi Muguruma, senior market economist at Mitsubishi UFJ Morgan Stanley Securities Co.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) -- Stellantis NV will decide in the coming days whether to close a car factory in the U.K. that has been in limbo since last year due to Brexit-related uncertainty.The automaker is weighing three options for the plant in Ellesmere Port, England, according to people familiar with the matter. It either will invest in making a new version of the Vauxhall and Opel Astra compact car there, build a different model at the facility, or shut it down, said the people, who asked not to be identified because no decision has been made.The site employing about 1,000 workers has emerged as an early test case for the U.K.’s carmaking prospects after the Brexit trade deal reached in late December. Stellantis Chief Executive Officer Carlos Tavares froze investment in the factory earlier in the year due to uncertainty about Britain’s future trading relationship with the European Union. While a crisis was avoided, the CEO has raised concerns about additional costs and bureaucracy, as well as Prime Minister Boris Johnson’s 2030 ban of combustion-engine cars.“You put your investment close to the market where you sell the highest volume,” Tavares said in January. Given that, he asked rhetorically: “What is left for the U.K.?”Stellantis may announce a decision as soon as Wednesday evening after meeting on the matter, according to a spokesman, who declined to comment further. The company also formed from the merger of PSA Group and Fiat Chrysler makes commercial vehicles at a factory in Luton, England. That plant’s future is secure, the people said.After the U.K.’s passenger-vehicle production plunged to a 36-year low last year, automakers now face more onerous customs procedures and requirements to source higher portions of components locally to avoid tariffs. There’s scarce battery production in the country now, and Stellantis already has a 5 billion-euro ($6.1 billion) project to make them in France and Germany with oil giant Total SE.“If you look at it from a pure logistic perspective or from a paperwork perspective, perhaps it’s better to put it in continental Europe,” Tavares said last month, referring to the company’s EV investments. “It depends also on the U.K. government’s willingness to protect some kind of automotive industry in its own country.”(Updates to add reference to possible timing of announcement in the 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.
Oil prices climbed on Wednesday to fresh 13-month highs after U.S. government data showed a drop in crude output after a deep freeze disrupted production last week. U.S. crude oil production dropped last week by more than 10%, or 1 million barrels per day, during the rare winter storm in Texas, equaling the largest weekly fall ever, the Energy Information Administration said.
Venezuela is shipping jet fuel to Iran in return for vital gasoline imports for the South American nation as part of a swap deal agreed by the two state-run oil firms, three people with knowledge of the matter told Reuters. Iran has ramped up assistance to Venezuela since last year as the United States tightened sanctions on both countries, hitting oil exports by state-run firms Petroleos de Venezuela and National Iranian oil Company (NIOC). Iran has sent flotillas of state-operated tankers carrying gasoline and feedstock for motor fuel to Venezuela, as well as equipment and spare parts to help the once-prosperous OPEC nation restart its dilapidated refineries.
Oil prices extended gains for a fourth session on Thursday to reach the highest levels in more than 13 months, underpinned by an assurance that U.S. interest rates will stay low and a sharp drop in U.S. crude output last week due to the storm in Texas. Brent crude futures for April gained 17 cents, 0.25%, to $67.21 a barrel by 1306 GMT, while U.S. West Texas Intermediate crude for April was at $63.42 a barrel, up 20 cents, 0.32%. Both contracts hit their highest since Jan. 8, 2020, earlier in the session with Brent at $67.70 and WTI at $63.79.
Stocks traded choppily Thursday morning as a rapid rise in Treasury yields spooked equity investors.
Borrowers are backing off, and mortgage demand is falling — but what if rates go higher?