An investor shift to stocks over bonds after the US presidential election triggered $1.2 trillion in bond losses, leading analysts to speculate that the 30-year-old bull bond market has reached its turning point. “The cracks have been forming for five years — we’re in this slow-grinding higher phase in yields,” said Jeffrey Gundlach, CEO of DoubleLine Capital.
Monthly Archives: November 2016
Mckinsey: Risk: Seeing around the corners
| In 2007, the Canadian dollar’s value rose 30 percent against the US dollar. Canadian producers knew they would be less competitive in the United States, but few understood that these changes would also affect the buying behavior of Canadians, 75 percent of whom live within 100 miles of the border. As consumers merrily headed south to buy cars, snowmobiles, and the like, Canadian companies had to cut prices in their domestic market. Hedging to cover their loss of competitiveness in the United States couldn’t protect them from the price squeeze at home. There’s no formula for anticipating how risk will cascade through economies, but in very uncertain times, executives must learn to foresee and prepare for it. Read more |
Career Bankers Alone Can’t Solve the Financial Industry’s Problems
The banking industry is mired in a state of permanent crisis. Some firms, like Deutsche Bank, are still trying to clamber out of holes they dug before the financial meltdown, negotiating multibillion-dollar settlements with the Department of Justice. Others, like Wells Fargo, have dug completely new holes for themselves, engaging in forms of Main Street misconduct that would have embarrassed the high-rolling investment bankers on Wall Street.
CDS trading begins on Chinese interbank market
Industrial Bank, Bank of Shanghai and Bank of China are among institutions that have begun trading credit default swaps on China’s interbank market, a source says. “The market has just kicked off, so both issuers and investors are cautious,” said Australia and New Zealand Banking Group’s David Qu.
More deposits, fewer loans prompt banks to stockpile bonds
US commercial banks own a record number of government bonds, including Treasurys, nonmortgage debt and mortgage-backed securities. Bank executives say they are buying bonds as they see more deposits but not enough solid loan opportunities
5 European exchanges get US regulator approval
The US Commodity Futures Trading Commission has approved Eurex, CME Europe, ICE Futures Europe, London Metal Exchange and London Stock Exchange as foreign boards of trade, which allows them to offer services directly to US firms and traders. “This registration will provide US-based clients with more choice, allowing them to access directly a range of derivatives listed on London Stock Exchange Derivatives Market,” said LSE head Nikhil Rathi.
ECB Study Finds Impact of Weak Euro on Prices Recedes With Time
The impact of currency moves on inflation have weakened in the 19-nation euro region, a European Central Bank study showed on Wednesday.
“Over time, the size of exchange rate pass-through is documented to have declined in the euro area and other advanced economies,” according to an article to be published in the ECB’s economic bulletin. “This decline can be attributed to several factors, including the low inflation environment prevailing in many economies over the past two decades and the changing composition of imports.”
Not So Low: A Review of Paul Blustein’s Book on the IMF and the Euro Area Crisis
The International Monetary Fund’s involvement in the euro area crisis has raised a lot of controversy. According to a widespread conventional view, the “Troika” of creditor institutions—the International Monetary Fund (IMF), the European Commission, and the European Central Bank (ECB)—demanded excessive fiscal austerity of Greece and other errant countries in return for their assistance, and this stance not only failed to restore Greek public credit but also prolonged economic weakness in other countries, including Portugal and Italy. Instead of calling for austerity, according to this view, the IMF should have forced a reduction of Greece’s debt (in other words, engineered an orderly default) from the start of its involvement in the spring of 2010. The IMF is also blamed for ignominiously forcing Ireland to bail out senior bondholders of its failed banks in November 2010 under orders from a dogmatic ECB, itself captured by European financiers.
Moody’s: Brexit could cost UK its Aa1 rating
If Britain loses access to the EU single market, its credit rating could be downgraded, said ratings agency Moody’s Investors Service. “The UK’s Aa1 sovereign rating would be downgraded if the UK’s loss of access to the European Single Market following Brexit were to materially weaken medium-term growth and if the credibility of UK fiscal policy were to be undermined,” according to a Moody’s statement
German regulator: Basel IV rules unacceptable
The Basel Committee on Banking Supervision’s proposed Basel IV rules are unacceptable for Germany, says Felix Hufeld, president of BaFin, the nation’s financial regulatory agency. The proposed regulations aim to avoid a repeat of the 2008 financial crisis, but critics worry that the rules could discourage banks from lending to companies and consumers due to the considerable increase in capital that must be held against risks
PBOC’s assets fall while other central banks’ rise
The Federal Reserve, the European Central Bank and the Bank of Japan have been in a stage of record bond buying and hold $12.7 trillion in sovereign debt, loans and other assets. Meanwhile, assets of the People’s Bank of China have declined approximately 10% since October 2014.
Monetary policy cracks emerge, Weidmann says
Jens Weidmann, a European Central Bank policymaker, says the risks associated with ultra-loose monetary policy are becoming clearer over time. “We shouldn’t ignore the fact that, even with monetary policy rates unchanged, the increase in inflation rates automatically leads to lower short-term real interest rates and, therefore, to a further loosening of the monetary policy stance,” Weidmann said
EU raises concerns about proposed capital rules
The Basel Committee on Banking Supervision is striving to complete its proposed capital standards for banks by year-end, but the EU is raising objections to the rules. A European Parliament panel is set to vote Thursday to seek a “level playing field” across all jurisdictions, said Roberto Gualtieri, head of the Economic and Monetary Affairs Committee
Analysis: Outlook favorable for US high-grade debt
A shift in market technicals next year will bring a cash-rich preference by investors who will willingly absorb fresh issues of US investment-grade bonds, according to analysts at Bank of America Merrill Lynch. The outlook may allay some fears of market volatility sparked by a repricing in US rates after last month’s rout of sovereign bonds and growing expectations that the Federal Reserve will raise rates next month.
Experts dismayed US debt ignored in presidential campaign
Former Federal Reserve Chairman Paul Volcker and former Commerce Secretary Pete Peterson wrote that they are disappointed the growing US national debt is a nonissue in the presidential campaign. “Unfortunately, despite a brief discussion during the final presidential debate, neither candidate has put forward a convincing plan to restrain the growth of the national debt in the decades to come,” they wrote
Challenges for Monetary Policy in Advanced Economies
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An aggressive central bank response in the form of easier monetary policy was key to containing the global financial crisis in major advanced economies, and it has supported a very slow recovery. Today, however, two interrelated issues have risen to the fore of the policy debate.
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Top 10 Economic Indicators – What to Watch & Why
The following ten indicators are in fact, quite critical in today’s times given all the imbalance occurring in the financial world. Read the papers and you would know about a lot of global events. In order to have a good recap of the events making news, they have been used as examples to support the ten indicators which you will see. The given indicators will try to cover as much as possible by including several other factors that form part of an indicator to help appreciate their interrelatedness.
I sincerely hope that reading this would enhance your knowledge and make you start looking at the financial world differently. The indicators mentioned are not in order of ranking since ‘beauty lies in the eyes of the beholder’ – beauty often lies.
So let’s begin with the real interesting stuff after the cautious and verbose introduction – the top ten indicators to watch out for and why you should watch out for them [according to me, the writer]. Two things to note before we begin – a leading indicator is one that helps determine economic changes and a lagging indicator follows economic changes.
- GDP and GDP Growth Rates
- Debt; Debt ratios and; Debt cycles
- Inflation and Inflation Expectations – Their friends & enemies
- Exchange Rate Stability
- Interest Rates – Policy Rates and Treasury Bond Rates
- Gold Prices and other metals’ prices
- Stock Markets and Volatility
- Risk Premiums
- Budgets; Deficits & Surpluses and; FDI Flows
- Crude Oil Prices
US Treasury official calls for Libor replacement
Banks should play a major part in the process of finding a benchmark to replace the London Interbank Offered Rate, said Daleep Singh, the US Treasury Department’s acting assistant secretary for financial markets. Speaking at a conference in Chicago, Singh encouraged market participants to start transitioning away from Libor.
Bonds and Climate Change 2016: India Edition
Since the publication of our Global State of the Market report in July 2016, some important developments have taken place in India’s labelled green bond market. India is now the 7th largest labelled green bond issuer with USD 2.7bn issued as of 12th of October 2016 – most of this has been issued since 2016.
BOJ flags risk for banks amid negative rates
The temptation to take on excessive risk may pose a danger for banks as they struggle to maintain profitability in a negative interest-rate environment, the Bank of Japan warned in a semi-annual report. The central bank also cautioned about “the risk of a gradual pullback in financial intermediation due to a persistent decline in profits
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