Posts belonging to Category bonds



The Federal Reserve left its key interest rate unchanged

Rate cuts are on the way

The Federal Reserve left its key interest rate unchanged Wednesday but signaled that it’s prepared to start cutting rates if needed to protect the U.S. economy from trade conflicts and other threats.

The Fed kept its benchmark rate — which influences many consumer and business loans — in a range of 2.25% to 2.5%, where it’s been since December.

It issued a statement saying that because “uncertainties” have increased, it would “act as appropriate to sustain the expansion.” That language echoed a remark Chairman Jerome Powell made two weeks ago that analysts interpreted as a signal that rate cuts were on the way.

http://www.abcnews.go.com

Small enterprises (SMEs) are turning to non-bank financing sources

SMEs account for 60% of total value added

Small and medium-sized enterprises (SMEs) are turning to non-bank financing sources at a faster pace than in the past, as bank lending to them has risen less than expected given today’s favourable credit conditions and business environment.

‘Financing SMEs and Entrepreneurs 2019: An OECD Scoreboard‘ finds that online peer-to-peer lending and equity crowdfunding increased significantly in 2017, especially in countries with small markets. China, the United Kingdom and the United States continued to have the biggest online alternative finance markets for businesses. Venture capital investments were up in most countries, and the number of SME listings expanded by more than 13% in 2017, with total SME market capitalisation up 16.7%.

SMEs and entrepreneurs constitute the backbone of OECD economies, accounting for 60% of total employment and 50-60% of value added. They are key to strengthening productivity, delivering inclusive growth and helping economies adapt to changes like the digital transition, ageing populations and the changing future of work. This eighth annual edition of the OECD’s SME financing Scoreboard provides data on debt, equity, asset-based finance and financing conditions in 46 countries and an overview of policy measures to ease SMEs’ access to finance.

http://www.oecd.org/

Corporate America, not banks, could cause the next recession

The next debt crisis: There’s a $6.3 trillion elephant in the room

The last downturn was triggered by Wall Street and Americans accumulating too much debt — particularly in the sizzling housing market. A decade later, it’s Corporate America borrowing with gusto. Egged on by extremely low rates, US companies have piled on a record-setting $6.3 trillion of debt, according to S&P Global Ratings. All that debt is easy to ignore right now. Default rates are minuscule. Companies are sitting on tons of cash, and their coffers are growing thanks to the soaring US economy and corporate tax cuts.
But eventually, both the economy and corporate profits will slow, leaving companies less firepower to pay down debt. And it won’t be as easy to roll over the debt that’s due. Debt-laden companies would be vulnerable to rising borrowing costs caused by the Federal Reserve’s interest rate hikes. If companies are stuck in a credit crunch, they will have to pull back on hiring and investment. That could be a recipe for a recession.

http://www.cnn.com

ECB move sends stocks lower

Dollar climbs

A gauge of global stock markets stumbled on Thursday while the U.S. dollar rose, as the European Central Bank postponed interest rate hikes to 2020 and launched a new round of cheap loans to banks in an effort to spark the euro zone economy. Equities had drifted lower over the past several sessions before the session’s sharp drop, sparked by the ECB’s change of direction just months after it wound down its massive quantitative easing program.

The ECB’s move puts it in sync with other central banks around the world that have been taking a dovish tack, including the Bank of Canada earlier this week. The ECB also cut its growth and inflation estimates for 2019 as well as those for 2020 and 2021, raising alarm bells for investors once again over global growth.

http://www.reuters.com/

China’s government sets growth target of at least 6%

China will slash taxes and boost lending

China will cut billions of dollars in taxes and fees, increase infrastructure investment, and step up lending to small firms, Premier Li Keqiang said Tuesday, as the world’s second-largest economy looks set to slow further this year.

The government aims to expand its economy by 6.0 to 6.5 percent in 2019, Li said at the opening of the annual meeting of China’s rubber-stamp parliament, less than the gross domestic product growth of 6.6 percent reported last year.

Sources said earlier this year that China would cut its 2019 growth target to 6.0 to 6.5 percent from the 2018 target of 6.5 percent amid growing economic headwinds.

https://www.japantimes.co.jp

Pound falls to lowest in almost two years amid Brexit uncertainty

Theresa May postpones vote on her Brexit plan

The pound has dropped to its lowest level for almost two years amid the growing risks to the British economy from political paralysis over Brexit and on a no-deal scenario.

Theresa May’s decision to delay the parliamentary vote on her Brexit plan to avoid an embarrassing defeat for the government sent sterling tumbling by more than 1.3% against the dollar and by almost 1% against the euro on the foreign exchange. The pound slumped below $1.26 to the lowest level since April 2017 after the prime minister said her Brexit plan would have been rejected by a “significant margin” in a Commons vote pencilled in for Tuesday. Sterling was worth $1.2563 against the dollar late on Monday and €1.1062 against the euro. Neil Wilson, the chief market analyst at the financial trading company Markets.com, said the pound had experienced one of its worst [days] since the 2016 referendum, adding that “the government [had] left investors completely in the dark about what happens next”. Analysts said the decision to delay the Brexit vote had pushed up the chances of a damaging no-deal scenario, while lack of clarity over the outcome would further weigh on business and consumer spending plans.

Economists at the Capital Economics consultancy said the chances of May’s deal passing the parliamentary vote in future, whenever it was held, was about 40%, with similar odds for a no-deal Brexit. It gave a 20% chance to a second referendum or a longer period of membership in the EU beyond the March 2019 deadline for article 50. Ruth Gregory, the senior UK economist at the firm, said the delay was “kicking the can further down the road”, adding: “We would not be surprised if Brexit uncertainty – which we estimate has knocked 0.5 percentage points off growth since the referendum – starts to weigh more heavily on the economy.”

The FTSE 100 closed down by almost 60 points after a day of selling on financial markets as concerns grew over the US trade war with China. The index of leading UK companies usually rises when the pound is weak because many firms make large amounts of money in foreign currency. The more UK-focused FTSE 250 index fell 2%, to its lowest level since December 2016. Thomas Cook, Stagecoach and Dominos Pizza were among the biggest fallers.

http://www.theguardian.com

 

Beijing is struggling to attract foreign banks

Balancing out capital outflow pressures

China has finally announced changes that should cut down the unusually high number of its listed companies that jump off the bourse when they get a bad feeling about the direction of their share prices. The practice alienates foreign investors and has left millions of Chinese mum and dad shareholders out of pocket. Last year, according to Caixin, 69 Shanghai-listed companies suspended trading every single day, on average.
The move comes as Beijing gropes for injections of momentum as the rate of growth in the world’s second-largest economy starts to slow. The Shanghai Stock Exchange  ( 上海证券交易所 ) issued draft rules on Wednesday that, if confirmed, should dramatically decrease the amount of time that shares are placed in a trading halt.
http://www.businessinsider.com

Sterling tumbles

World stocks rebound on trade optimism

A gauge of global stocks climbed on Thursday after five sessions of declines as Wall Street surged on trade optimism, while sterling tumbled as political developments in Britain rippled through markets.

Oil prices rose modestly, as the commodity recouped some losses from a recent steep plunge.
U.S. stock indexes surged after a Financial Times report that U.S. Trade Representative Robert Lighthizer has told some industry executives that another round of tariffs on Chinese imports has been put on hold as the two nations pursue talks.

Two-thirds of the S&P 500 is in a correction

Sell-off worsens

Two-thirds of the stocks in the S&P 500 ended the trading session in correction territory or worse on Wednesday, as a sell-off led by technology names deepened a steep drop for the index in October.
When the dust settled on Wednesday, 332 of the S&P’s 505 components — or 66 percent of the index — had fallen by 10 percent or more from their 52-week highs. The S&P 500 fell 3.3 percent at 2,785 amid fears of rising interest rates and the flight from tech stocks.
There were 190 components in correction territory, meaning they have fallen by 10 to 20 percent from their 52-week highs. The stocks in correction included retail names like Michael Kors, financials such as Citigroup, and tech giants Amazon and Google’s parent Alphabet.
http://www.cnbc.com

Trump criticizes the rise of interest rates

The Federal Reserve has ‘gone crazy’

President Donald Trump knocked the Federal Reserve for continuing to raise interest rates despite some recent market turbulence. “I think the Fed is making a mistake. They are so tight. I think the Fed has gone crazy,” the president said after walking off Air Force One in Erie, Pennsylvania for a rally. Fears about rapidly rising rates helped cause the Dow Jones Industrial Average to drop more than 800 points Wednesday. The S&P 500 posted its worst day since February and clinched its first five-day losing streak since 2016.
“Actually, it’s a correction that we’ve been waiting for for a long time, but I really disagree with what the Fed is doing,” the President added. The Fed has raised interest rates three times this year and is largely expected to hike once more before year-end.
http://www.cnbc.com

China will never use its currency as a weapon in the trade war

The trade war between China and the United States is intensifying

Premier Li Keqiang told an audience of global executives and policymakers that China would not weaken the yuan to boost trade with the rest of the world. “China will never go down the path of stimulating exports by devaluing its currency,” Chinese Premier Li Keqiang said Wednesday.
His comments came a day after the United States and China announced that they would impose their biggestrounds of tariffs yet on each other’s exports, starting next week. That brings the value of goods hit by tariffs in the escalating conflict to more than $360 billion. President Donald Trump has threatened to hit another $267 billion of Chinese goods with tariffs.
http://www.cnn.com

Deutsche Bank mulls merger scenario with UBS

Deutsche Bank (DBKGn.DE) has looked at a theoretical scenario of merging with UBS (UBSG.S), the German business daily Handelsblatt reported on Wednesday, citing people familiar with the matter. The scenario, along with a potential merger with Commerzbank (CBKG.DE), was discussed at the bank’s strategy meeting with the supervisory board earlier this month, Handelsblatt said.
On paper, a potential merger with UBS fares better than a deal with Commerzbank as Deutsche Bank and the Swiss lender would complement each other well in the areas of investment banking and wealth management, the report said. A merger with Commerzbank, in contrast, might lead to high restructuring costs due to large overlap, the paper said.
http://www.reuters.com

European Union rejects Theresa May BREXIT plan

The EU tells Theresa May  Chequers Brexit plan ‘will not work’

Theresa May was left fighting to save her Chequers Brexit plan and with it her authority as prime minister after she was ambushed at the end of the Salzburg summit when EU leaders unexpectedly declared that her proposals would not work.
On Thursday night the transport secretary, Chris Grayling, hit back for the government, declaring there were no changes to the Chequers plan on the table and the EU’s demands on Northern Ireland were “impossible” for the UK to accept. “The PM has set out red lines that this country is not going to stay in the single market, we’re not going to stay in the customs union – I agree with her on those, that’s the government’s position,” Grayling said.
The prime minister was thrown on to the defensive – just over a week before the Conservative party conference – when EU leaders led by Donald Tusk and Emmanuel Macron rejected her Chequers plan as it stood, prompting hard Brexit Conservatives to demand it be abandoned.
http://www.theguardian.com

Turkey could be the next emerging market to fall into crisis

The Turkish lira has now lost 27% of its value this year

Economists had been expecting the bank to hike rates to fight inflation, which topped 15% in June. Many observers said the unorthodox decision showed that President Recep Tayyip Erdogan, who supports lower interest rates, has increased his influence over the central bank.
http://www.cnn.com

Venezuela’s inflation rate may hit 1,000,000 percent

Hyperinflation in Venezuela

 When the International Monetary Fund predicted this year that hyperinflation in Venezuela could top 13,000 percent, it seemed as if the South American country’s economic outlook could not get any worse.

It just did. With the situation in the country deteriorating faster than expected, the IMF has unveiled a far more severe prognosis, saying that Venezuela’s hyperinflation is poised to reach an annualized rate of 1 million percent by year’s end. That inflation rate is set to catapult socialist Venezuela into a rogue’s gallery of nations that have suffered the worst inflation rates in history.

Venezuela’s “is one of the most severe hyperinflation situations that we’ve known about since the beginning of the 20th century,” said Robert Rennhack, deputy director of the IMF’s Western Hemisphere Department.

http://www.washingtonpost.com